Question

Hamlet acquires a 7-year class asset on November 23, 2021, for $138,600 (the only asset acquired during the year). Hamlet does not elect immediate expensing under § 179. He does not claim any available additional first year depreciation. This is Hamlet's only property acquisition for the year. Click here to access the depreciation table to use for this problem. If required, round your answers to the nearest dollar. Calculate Hamlet's cost recovery deduction for 2021 and 2022. 2021: \$ 2022: $

Answer 1

The depreciation for Hamlet's 7-year class asset is approximately $9,914 for 2021 and $33,932 for 2022.

Given:

- Cost of the asset: $138,600

- Depreciation class: 7-year property

Depreciation Calculation:

2021 Depreciation:

`\[ \text{Half-Year Depreciation for 2021} = \frac{\text{Cost of Asset} * \text{Depreciation Rate for Year 1}}{2} \]`

Given the 7-year MACRS depreciation rates:

- Year 1 depreciation rate: 14.29%

`\[ \text{Half-Year Depreciation for 2021} = (138,600 * 14.29\%)/(2) \]`

`\[ \text{Half-Year Depreciation for 2021} = (138,600 * 0.1429)/(2) \]`

`\[ \text{Half-Year Depreciation for 2021} = (19,827.54)/(2) \]`

`\[ \text{Half-Year Depreciation for 2021} = \$9,913.77 \]`

2022 Depreciation:

`\[ \text{Full-Year Depreciation for 2022} = \text{Cost of Asset} * \text{Depreciation Rate for Year 2} \]`

- Year 2 depreciation rate: 24.49%

`\[ \text{Full-Year Depreciation for 2022} = 138,600 * 24.49\% \]`

`\[ \text{Full-Year Depreciation for 2022} = 138,600 * 0.2449 \]`

`\[ \text{Full-Year Depreciation for 2022} = 33,931.94 \]`

`\[ \text{Full-Year Depreciation for 2022} = \$33,932 \]`

2021:

- Half-Year Depreciation: $9,914

2022:

- Full-Year Depreciation: $33,932

Answer 2

The cost recovery deduction for 2021 and 2022 is $4,948.02 and $38,184.3 respectively.

Cost recovery deduction refers to the tax benefit that allows businesses to recover the cost of certain assets over time through depreciation or amortization, reducing taxable income.

Given data:

Asset acquired for $138,600

To calculate Hamlet's cost recovery deductions, we will apply the MACRS to the asset.

First year depreciation tax rate = 0.0357

Second year depreciation tax rate = 0.2755

First year depreciation:

= $138,600* 0.0357

= $4,948.02

Second year depreciation:

= $138,600* 0.2755

= $38,184.3