Question

Sairra, LLC purchased only one asset during the current year (a full 12-month tax year). Sairra placed in service furniture (7-year property) on April 16 with a basis of $25,000. Calculate the maximum depreciation expense for the current year? (ignoring §179 and bonus depreciation). (Use MACRS Table 1)

a. $4,463.
b. $1,786.
c. $5,000.
d. $3,573.
e. None of the choices are correct.

Answer 1

The maximum depreciation expense for Sairra, LLC's furniture under MACRS without Section 179 and bonus depreciation is $3,573 for the current year.

Step-by-step explanation:

The question about Sairra, LLC pertains to the calculation of depreciation expense using the Modified Accelerated Cost Recovery System (MACRS) for a piece of furniture which is considered 7-year property. To calculate the maximum depreciation expense for the current year without considering Section 179 and bonus depreciation, we refer to the MACRS table for 7-year property. As the furniture was placed in service on April 16, we use the half-year convention which assumes the property is in service for half the year. According to MACRS Table 1, the depreciation rate for the first year for 7-year property is 14.29%. Therefore, the depreciation expense for the current year would be 14.29% of $25,000, which equals $3,572.50. Rounded to the nearest whole dollar, the answer would be $3,573 (without considering Section 179 and bonus depreciation).