Question

An asset (not an automobile) placed in service in June 2018 has a depreciable basis of $2,555,000, a recovery period of 5 years, and is the only asset placed in service during the year. Assuming bonus depreciation is not used, a half-year convention, and the expensing election is made for the maximum eligible amount, what is the amount of cost that can be deducted in 2018 assuming the business earned taxable income of $1,000,000 before deducting any cost recovery?

Answer 1

Answer:

The amount allowed in the year 2018 = $298,083

Explanation:

Provided information,

Asset value = $2,555,000

Life of asset = 5 years

Salvage value =  $0

Since depreciation is not to be charged on bonus basis, the depreciation for each year = $2,555,000/5 = $511,000

Since the asset is put to use in June, the amount to be deducted will be for 7 months June to December.

= $511,000 \times \frac{7}{12} = 298,083$

Thus the amount allowed in the year 2018 = $298,083