Barry purchased a used business asset (seven-year property) on September 30, 2018, at a cost of $200,000. This is the only asset he purchased during the year. Barry did not elect to expense any of the asset under § 179, did not take additional first-year depreciation, and did not elect straight-line cost recovery. Barry sold the asset on July 17, 2019. Determine the cost recovery deduction for 2019.
A) $19,133
B) $24,490
C) $34,438
D) $55,100
E) None of the above

Question

Quizplus · Accepted Answer

To determine the cost recovery deduction for 2019, we need to first determine the depreciation method and period that Barry used. Since he did not elect straight-line cost recovery and did not take additional first-year depreciation, we can assume that he used the Modified Accelerated Cost Recovery System (MACRS) with a seven-year recovery period.

Using the MACRS table, we can find that the applicable depreciation rate for a seven-year property in the first year of service is 14.29%. Therefore, the depreciation deduction for 2019 is:

$200,000 x 14.29% = $28,580

However, since Barry sold the asset on July 17, 2019, he can only take depreciation for the portion of the year that he owned the asset. This is calculated as:

($200,000 x 14.29%) x (200/365) = $7,887

Therefore, the cost recovery deduction for 2019 is $7,887.

Barry Purchased a Used Business Asset (Seven-Year Property) on September