Question

Kristine sold two assets on March 20th of the current year. The first was machinery with an original basis of $61,000, currently in the fourth year of depreciation, and depreciated under the half-year convention. The second was furniture with an original basis of $26,000, placed in service during the fourth quarter, currently in the third year of depreciation, and depreciated under the mid-quarter convention. What is Kristine's depreciation deduction for the current year if the depreciation recovery period is seven years? (Use MACRS Table 1 and Table 2 and Exhibit 10-6.) (Round final answer to the nearest whole number.)

Answer 1

Rate of depreciation applicable for fourth year under half-year convention = 12.49%

Depreciation allowed is only half of allowable depreciation under half-year convention in the year of disposal.

Depreciation on Machinery = $61,000 X 12.49% X 50% = $3,810

Rate of depreciation applicable for third year under mid-quarter convention = 19.68%

Asset disposed during first quarter. Depreciation allowed = $26,000 X 19.68% X 1.5/12 = $640

Total depreciation deduction = $3,810+$640 = $4,450