On August 3, 2018, Yang purchases office furniture (7-year property) costing $21,000 for use in her business. She does not wish to use the Section 179 election, elects not to use bonus depreciation and makes the election to use the straight-line method over the MACRS recovery period. What is Yang's 2018 cost recovery deduction?

Question

Quizplus · Accepted Answer

Under the MACRS system, 7-year property placed in service during the tax year is depreciated over a 7-year recovery period, but when the straight-line method is elected, the property is depreciated evenly over its recovery period. For the first year, the deduction is calculated by dividing the cost by the recovery period and then prorating for the portion of the year the asset was in service. Since the asset was placed in service in August, it is considered in service for 4.5 months of the year (August through December). The annual straight-line depreciation would be $21,000 / 7 = $3,000. However, for the first year, only a portion of the year's depreciation is allowed, calculated as $3,000 * (4.5/12) = $1,125. However, none of the provided answers exactly match this calculation, suggesting a need for clarification or a possible error in the question or answer choices. Given the options, $1,500 (B) is the closest to the expected prorated amount, but it does not accurately reflect the correct calculation based on the information provided. This suggests a potential misunderstanding or simplification in the question's assumptions about how depreciation is calculated for partial years under the straight-line method when electing out of bonus depreciation and Section 179.

On August 3, 2018, Yang Purchases Office Furniture (7-Year Property)