A taxpayer places in service the following properties (all purchased used) durin
ID: 2452382 • Letter: A
Question
A taxpayer places in service the following properties (all purchased used) during2014:
Type of property Date placed in service Cost
Office building April 6 $275,000
Furniture June 5 87,000
Computers September 26 25,000
Machinery October 2 65,000
Section 179 expense is not taken on any of these properties, and the taxpayer uses regular (accelerated) MACRS to depreciate all personal property. Depreciation expense on the office building and machinery for 2014 is:
$4,995 and $2,321,respectively.
$7,083 and $3,250,respectively.
$4,995 and $9,289,respectively.
$7,083 and $3,969,respectively.
none of theabove.
Explanation / Answer
Since, less than 40% of the personal property comprising of furniture, computers and machinery is placed in service during the last quarter of the year, we will apply the half-year convention rule for calculating depreciation. Machinery falls in the 7 year property class of MACRS and therefore, the applicable depreciation rate would be 14.29% for the first year.
In case of office building, the building would be depreciation as per the straight line method for a period of 39 years (in accordance with the rules of IRS) for the period for which the building was during the year.
____________
Depreciation on Office Building = Cost/39*Months for the Current Year/12 = 275,000/39*8.5/12 = $4,995 [we take 8.5 assuming the building is put to use in the middle of the month]
Depreciation on Machinery = Cost*MACRS Depreciation Rate for First Year = 65,000*14.29% = $9,289
Answer is $4,995 and $9,289 (which is Option C)
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