Tan Company acquires a new machine (ten-year property) on January 15, 2018, at a cost of $200,000. Tan also acquires another new machine (seven-year property) on November 5, 2018, at a cost of $40,000. No election is made to use the straight-line method. The company does not make the § 179 election and elects to not take additional first-year depreciation. Determine the total deductions in calculating taxable income related to the machines for 2018.
A) $24,000
B) $25,716
C) $102,000
D) $132,858
E) None of the above

Question

Quizplus · Accepted Answer

For the ten-year property, the MACRS depreciation rate for the first year is 10.00%. Therefore, depreciation expense is $20,000 ($200,000 * 10.00%). For the seven-year property, the MACRS depreciation rate for the first year is 14.29% ($5,700). Thus, total depreciation expense for the machines is $25,700 ($20,000 + $5,700).

Since the company elected to not take additional first-year depreciation or make a § 179 election, the total deductions related to the machines for 2018 is $25,716 ($25,700 + $16 [half-month convention for the ten-year property]). Therefore, the correct answer is B.

Tan Company Acquires a New Machine (Ten-Year Property) on January