At the beginning of its 2018 tax year, Hiram owned the following business assets

Question

At the beginning of its 2018 tax year, Hiram owned the following business assets Date PlacedInitial Accumulated Recovery Depreciation Furniture Equipment Machinerv in Service 6/19/16 5/2/15 9/30/15 $30,750 70,000 58,000 Cost Depreciation Period Convention 7-year Half-year 5-year Half-year 5-year Half-year $11,925 49,840 41,296 On July 8, Hiram sold its equipment. On August 18, it purchased and placed in service new tools costing $589,000; these tools are three-year recovery property. These were Hiram's only capital transactions for the year. Compute Hiram's maximum cost recovery deduction for 2018. In making your computation, assume that taxable income before depreciation exceeds $1,000,000. Use Table 7-2 (Enter all amounts as positive values. Round your intermediate computations and final answers to the nearest whole dollar amount.) 2018 MACRS Depreciation Furniture Equipment Machinery Total MACRS Depreciation Section 179/bonus on new tools Total 2018 cost recovery

Explanation / Answer

Solution:-

17.49% (for 7 years)

= 30,750 * 17.49%

= $5,378.175

= 70,000 * 11.52%

= $8064

= 58,000 * 11.52%

= $6681.6

= 5,378.175 + 6,681.6 + 8064

= $20,123.775

= 589,000 * 14.81

= $87,230.9

= 87,230.9 + 20,123.775

= $107,354.67

= $107,354

2018 MACRS depreciation Amount Furniture

17.49% (for 7 years)

= 30,750 * 17.49%

= $5,378.175

Equipment

= 70,000 * 11.52%

= $8064

Machinary 11.52%

= 58,000 * 11.52%

= $6681.6

Total MACRS depreciation

= 5,378.175 + 6,681.6 + 8064

= $20,123.775

Section 179/ bonus on new tools

= 589,000 * 14.81

= $87,230.9

Total 2018 cost recovery

= 87,230.9 + 20,123.775

= $107,354.67

= $107,354

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