Question

An asset (not an automobile) put in service in June 2015 has a depreciable basis of $35,000 and a recovery period of 5 years. Assuming half-year convention, no bonus depreciation, and no election to expense is made, what is the maximum amount of cost that can be deducted in 2015?

Answer 1

The maximum deduction for an asset put in service in June 2015, with a depreciable basis of $35,000 and a recovery period of 5 years, is $3,500 for the year 2015, calculated using the Modified Accelerated Cost Recovery System (MACRS) with a half-year convention.

Step-by-step explanation:

To determine the maximum amount of cost that can be deducted in 2015 for an asset with a depreciable basis of $35,000 and a recovery period of 5 years, using the half-year convention, one must refer to the Modified Accelerated Cost Recovery System (MACRS) which is often used in accounting for depreciation. For 5-year property under MACRS, the first year's depreciation rate is 20% when using the half-year convention. However, since the asset is placed in service in June, only half the annual depreciation applies.

Therefore, the depreciation calculation for 2015 would be: $35,000 (depreciable basis) × 20% (first year MACRS rate for 5-year property) × 0.5 (half-year convention) = $3,500 maximum deduction for 2015.

Answer 2

Answer:$3,500

Step-by-step explanation:

Depreciation is a method of reducing the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero.

Depreciable value of an asset is the difference between the combined cost of purchase and installation of an asset that can be depreciated and its salvage value.

There are various method of calculating depreciation but the most common and easy is the straight line method.

Here, the depreciable basis is $35,000 and with a period of 5 years in June, 2015.

Therefore, we say

50%(0.5) multiply by $35,000 which gives us a value of $17,500.

So, 20%(0.2) multiply by $17,500 gives $3,500.

Therefore, the cost that can be deducted in June is $3,500.