Question

Yancy purchased a new business asset (three-year personalty) on July 23, 2017, at a cost of $40,000. Yancy does not take additional first-year depreciation. The cost recovery deduction for 2017 would be:

a. $40,000.
b. $30,000.
c. $13,332.
d. $8,000.
e. None of these choices are correct.

Answer 1

The cost recovery deduction for 2017 would be $13,332.

Step-by-step explanation:

To calculate the cost recovery deduction for 2017, we need to determine the depreciation expense for the asset. Since the asset is a three-year personalty, we can use the MACRS (Modified Accelerated Cost Recovery System) depreciation method. The MACRS depreciation for the first year is calculated using the half-year convention, which means that only half of the full-year depreciation is allowed in the first year.

The MACRS depreciation percentage for three-year personalty in the first year is 33.33%. So, the depreciation expense for Yancy's asset in 2017 would be $40,000 * 33.33% = $13,332.

Therefore, the cost recovery deduction for 2017 would be $13,332.