Question

Aaron has a successful business with 50,000 of income in 2022. He purchased a new 7-year MACRS property with a cost of7,000. For tax purposes, what cost recovery will provide the largest amount Aaron can deduct in 2022 for the new asset?

Answer 1

Aaron can deduct the cost of the new asset using the Modified Accelerated Cost Recovery System (MACRS). The largest amount he can deduct in 2022 for the new asset is $1,000.

Step-by-step explanation:

Aaron can deduct the cost of the new asset using the Modified Accelerated Cost Recovery System (MACRS). MACRS assigns different recovery periods and depreciation percentages to different types of assets. Since the new asset is a 7-year property, Aaron will use the applicable recovery period of 7 years.

In 2022, the MACRS depreciation percentages for 7-year property are as follows:

• Year 1: 14.29%
• Year 2: 24.49%
• Year 3: 17.49%
• Year 4: 12.49%
• Year 5: 8.93%
• Year 6: 8.93%
• Year 7: 8.93%

To calculate the deduction for 2022, Aaron will multiply the cost of the new asset ($7,000) by the depreciation percentage for Year 1 (14.29%). The largest amount he can deduct in 2022 would be $1,000 (rounded to the nearest dollar).