Greenville Floral places a new tractor (7-year MACRS) into service on January 8, 2018. They pay $28,000 for the tractor. This is the only business asset placed into service during this year. Greenville Floral wants to minimize the amount of depreciation deductible in 2018. What is Greenville Floral's cost recovery for 2018?

Question

Quizplus · Accepted Answer

To minimize the amount of depreciation deductible in 2018, Greenville Floral should choose the straight-line method. The MACRS table for 7-year property with a mid-month convention and a recovery year of 7 is:

Year 1: 14.29%
Year 2: 24.49%
Year 3: 17.49%
Year 4: 12.49%
Year 5: 8.93%
Year 6: 8.92%
Year 7: 8.93%

Using the straight-line method, the annual depreciation expense is $4,000 (28,000/7 years). However, since this is the only business asset placed into service during the year and the mid-month convention is used, the half-year convention applies. Therefore, the first-year depreciation deduction is half of the first-year annual depreciation expense, or $2,000.

Therefore, the cost recovery for 2018 is $2,000. Option B is the correct answer.

Greenville Floral Places a New Tractor (7-Year MACRS) into Service