Question

Wild company purchased an asset on December 1, Year 1. Based on the Modified Accelerated Cost Recovery System (MACRS), Wild can deduct

one half of one full year of depreciation on its Year 1 tax return.

Answer 1

A student asked about the deduction of depreciation for an asset using MACRS, which allows a half-year's deduction in the first year regardless of the purchase date within that year.

Step-by-step explanation:

The question asks about deducting depreciation on a tax return for an asset purchased by Wild company using the Modified Accelerated Cost Recovery System (MACRS). This system allows for a one-half year depreciation deduction for the year the asset is placed in service, regardless of the purchase date within that year. Under MACRS, a taxpayer can deduct a fixed percentage of the asset's depreciable basis each year, which is calculated on the cost of the asset minus any salvage value and spread over the asset's recovery period as determined by IRS tables.

For assets placed in service in the second half of the year, MACRS permits what is commonly referred to as the “half-year convention,” which allows for a half-year's worth of depreciation in the first year, regardless of when the asset was actually purchased or put into service during that year.