Final answer:
The total cost recovery deduction for the asset placed in service in 2019, assuming Section 179 with no income limitation and no bonus depreciation while following the half-year convention, is $1,005,000. This includes the $1,000,000 Section 179 deduction plus an additional $5,000 which is 10% of the remaining asset cost after the Section 179 limit is applied.
Step-by-step explanation:
The taxpayer has placed an asset in service with a value of $1,050,000 and a recovery period of 5 years. Under the Section 179 deduction, the taxpayer can elect to expense the entire cost of the asset, presuming there are no income limitations or other investments limiting the deduction. Considering that there is no bonus depreciation and the half-year convention applies, we need to determine how much of the asset's cost can be recovered in the first year.
As of the 2019 tax year, the maximum Section 179 expense deduction is $1,000,000. Since the cost of the asset ($1,050,000) exceeds the Section 179 limit, only $1,000,000 can be expensed under Section 179. The remaining $50,000 would be depreciated normally over the asset's 5-year recovery period using MACRS, which due to the half-year convention, allows for 20% depreciation in the first year. However, only half of the 20% applies because of the half-year convention, thus giving us 10% depreciation on the remaining $50,000. Therefore, the total deduction amount for the first year would be the $1,000,000 Section 179 deduction plus 10% of the remaining $50,000, which is $5,000. The total cost recovery deduction for the first year would then be $1,005,000 ($1,000,000 + $5,000).