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Calculate Depreciation Using MACRS - CPA Reg

  1. A company acquires two assets during the year, both of which are 7-year property. Asset A, costing $40,000, is placed in service on April 1. Asset B, costing $70,000, is placed in service on December 1. These are the only assets acquired during the year. Which depreciation convention must be used?
    Answer: Mid-quarter for both assets. The correct answer is D. The mid-quarter convention applies if more than 40% of the aggregate bases of personal property is placed in service during the last three months of the tax year. Total acquisitions are $40,000 + $70,000 = $110,000. The amount placed in the fourth quarter is $70,000. The percentage is $70,000 / $110,000 = 63.6%. Since this exceeds 40%, the mid-quarter convention must be used for both assets placed in service during the year.
  2. Under the MACRS General Depreciation System (GDS), which of the following assets has a 5-year recovery period?
    Answer: Automobiles and light-duty trucks The correct answer is C. Automobiles and light-duty trucks are specifically listed as 5-year property under MACRS GDS. Office desks and chairs (office furniture) are 7-year property. A residential apartment building is 27.5-year property. Most manufacturing equipment is 7-year property.
  3. What is the MACRS depreciation deduction for the new roof in 2024?
    Answer: $1,833 The correct answer is $1,833. A major component like a new roof on a nonresidential real property is treated as a separate asset. It is depreciated as 39-year nonresidential real property, placed in service on the date the improvement is completed. The mid-month convention applies. The roof was placed in service in July, so 5.5 months of depreciation are allowed for the year. Calculation: ($156,000 basis / 39 years) (5.5 months / 12 months) = $4,000 per year (5.5 / 12) = $1,833.
  4. What is the MACRS depreciation deduction for the building for the short tax year ending December 31, 2024?
    Answer: $4,375 The correct answer is $4,375. For real property, the mid-month convention applies regardless of whether the tax year is short or full. Depreciation is calculated based on the number of months the property is in service. The building was placed in service in September. It is considered in service for 3.5 months (mid-September, October, November, December). First, find the full-year depreciation: $412,500 / 27.5 years = $15,000. Then, prorate for the months in service: $15,000 * (3.5 / 12) = $4,375.
  5. On February 2 of the current year, a partnership acquired and placed in service a commercial office building with a depreciable basis of $1,950,000. What is the MACRS depreciation expense for the building in the current year?
    Answer: $43,750 The correct answer is $43,750. Nonresidential real property is depreciated using the straight-line method over a 39-year recovery period with a mid-month convention. The building was placed in service in February, so it is treated as being in service for 10.5 months during the first year (from the middle of February to the end of December). The calculation is: ($1,950,000 depreciable basis / 39 years) (10.5 months / 12 months) = $50,000 per year (10.5/12) = $43,750.
  6. On May 1, 2024, a business purchased new qualifying equipment (7-year property) for $300,000. The business properly elected to take 60% bonus depreciation. What is the amount of the regular MACRS depreciation deduction for the equipment in 2024, in addition to the bonus depreciation?
    Answer: $17,148 The correct answer is $17,148. First, calculate the bonus depreciation: $300,000 60% = $180,000. Next, reduce the asset's basis by the bonus depreciation amount to find the remaining basis for regular MACRS depreciation: $300,000 - $180,000 = $120,000. Finally, calculate the regular MACRS depreciation on the remaining basis using the 7-year property, half-year convention rate of 14.29%: $120,000 14.29% = $17,148.
  7. What is the asset's adjusted basis for determining gain or loss on the sale?
    Answer: $14,379 The correct answer is $14,379. To determine the adjusted basis at the time of sale, you must first calculate the depreciation for the year of sale. Since the half-year convention was used at acquisition, it must also be used for disposition. Full Year 5 depreciation would be $70,000 8.93% = $6,251. Depreciation in the year of sale is half of that: $6,251 0.5 = $3,125.50. Total accumulated depreciation is the beginning balance plus the current year's depreciation: $52,493 + $3,125.50 = $55,618.50. The adjusted basis is the original basis less total accumulated depreciation: $70,000 - $55,618.50 = $14,381.50. The closest answer is $14,379.
  8. Which depreciation convention must the company use for its personal property for the current year?
    Answer: Mid-quarter convention The correct answer is Mid-quarter convention. The mid-quarter convention must be used if more than 40% of the total depreciable basis of personal property is placed in service during the last three months (the fourth quarter) of the tax year. First, calculate the total basis of property placed in service: $150,000 + $50,000 + $225,000 = $425,000. Next, determine the basis of property placed in service in the fourth quarter (October, November, December): $225,000. Finally, calculate the percentage: $225,000 / $425,000 = 52.9%. Since this is greater than 40%, the mid-quarter convention is required for all personal property placed in service during the year.
  9. What is the MACRS depreciation deduction for the equipment in Year 2?
    Answer: $12,245 The correct answer is $12,245. For MACRS, the depreciation in subsequent years is calculated by multiplying the original basis of the asset by the applicable percentage from the IRS tables for that year. The adjusted basis is not used in the calculation. The calculation is: $50,000 (original cost) * 24.49% (Year 2 percentage) = $12,245.
  10. A taxpayer places in service new office furniture costing $21,000 on March 1. The furniture is 7-year GDS property. The taxpayer makes an election to use the Alternative Depreciation System (ADS). What is the first-year depreciation deduction under ADS?
    Answer: $1,050 The correct answer is $1,050. Under ADS, office furniture has a 10-year recovery period. ADS requires the use of the straight-line method. The half-year convention must also be used for personal property under ADS (unless the mid-quarter convention is triggered). The calculation is: ($21,000 cost / 10 years) * 1/2 (half-year convention) = $1,050.
  11. A taxpayer owns a residential rental property that was placed in service several years ago. The property has a depreciable basis of $275,000. On July 10 of the current year, the taxpayer sells the property. What is the amount of MACRS depreciation for the property in the year of sale?
    Answer: $5,417 The correct answer is $5,417. Real property uses the mid-month convention for the year of disposition. First, calculate the full-year straight-line depreciation: $275,000 basis / 27.5 years = $10,000. The property was sold in July, so it is considered to have been in service for 6.5 months (January through June, plus half of July). The depreciation for the year of sale is calculated as: $10,000 * (6.5 months / 12 months) = $5,417.
  12. On May 20 of the current year, a taxpayer purchased and placed in service a residential rental property. The depreciable basis of the building is $330,000. What is the MACRS depreciation deduction for this property in the current year?
    Answer: $7,500 The correct answer is $7,500. Residential rental property is depreciated using the straight-line method over a 27.5-year recovery period with a mid-month convention. Since the property was placed in service in May, it is treated as being in service for 7.5 months during the first year (from the middle of May to the end of December). The calculation is: ($330,000 depreciable basis / 27.5 years) (7.5 months / 12 months) = $12,000 per year (7.5/12) = $7,500.
  13. On April 10, 2025, a C Corporation purchased and placed in service new manufacturing equipment (tangible personal property) for $120,000 to be used 100% in its production operations. The equipment is 7-year MACRS property (GDS) and the half-year convention applies; no Section 179 expense or bonus depreciation is elected. What is the allowable depreciation deduction for 2025 under MACRS?
    Answer: $17,148 This question tests the application of the Modified Accelerated Cost Recovery System (MACRS) for depreciating tangible personal property using the General Depreciation System (GDS) with the half-year convention. The key facts are that the manufacturing equipment is 7-year property with a cost basis of $120,000, placed in service in the second quarter of 2025, and no elections for Section 179 or bonus depreciation. The correct answer aligns with IRS MACRS guidelines because the first-year depreciation rate for 7-year property under the half-year convention is 14.29%, resulting in $120,000 × 14.29% = $17,148. Choice A ($8,571) is incorrect as it represents half of the first-year amount, possibly a misapplication of the convention; choice C ($24,000) wrongly applies the 20% rate for 5-year property; choice D ($14,580) might stem from using an incorrect rate like 12.15%. To calculate MACRS depreciation generally, identify the asset's class life to determine the recovery period, then apply the appropriate convention and depreciation table percentages. Emphasizing proper selection of class life and recovery period ensures accurate deductions over the asset's useful life as per IRS rules.
  14. A company purchases a used machine (7-year property) for $180,000 and places it in service on February 10. The company elects to expense $120,000 of the cost under IRC Section 179. No bonus depreciation is taken. What is the regular MACRS depreciation deduction for the machine in its first year?
    Answer: $8,574 The correct answer is $8,574. The depreciable basis of the asset must first be reduced by the amount expensed under Section 179. The remaining basis is then depreciated using MACRS. The remaining basis is $180,000 - $120,000 = $60,000. Regular MACRS depreciation for 7-year property in the first year (using the half-year convention) is 14.29%. The calculation is: $60,000 * 14.29% = $8,574.
  15. What is the total MACRS depreciation for the year?
    Answer: $22,000 The correct answer is $22,000. First, determine the convention. Total assets placed in service: $40,000 + $160,000 = $200,000. Assets placed in service in Q4: $160,000. Percentage: $160,000 / $200,000 = 80%. Since this is over 40%, the mid-quarter convention must be used for both assets. The MACRS percentages for 5-year property are 35% for Q1 and 5% for Q4. The calculation is: Asset X (Q1): $40,000 35% = $14,000. Asset Y (Q4): $160,000 5% = $8,000. Total depreciation: $14,000 + $8,000 = $22,000.
  16. What is the MACRS depreciation deduction for the machine in Year 4, the year of its disposition?
    Answer: $4,996 The correct answer is $4,996. When personal property that was subject to the half-year convention is disposed of, the half-year convention is also applied in the year of disposition. This means the taxpayer is entitled to one-half of the depreciation that would have been allowed for a full year. The calculation is: $80,000 (original basis) 12.49% (full year rate) 1/2 = $4,996.
  17. What is the MACRS depreciation deduction for the computer in Year 3, the year of sale?
    Answer: $3,600 The correct answer is $3,600. When property subject to the mid-quarter convention is sold, the disposition is also treated as occurring at the midpoint of the quarter in which it is sold. First, calculate the depreciation for a full year: $30,000 19.20% = $5,760. The computer was originally Q1 property. It was sold in Q3 (August 1). For a Q1 asset sold in Q3, it is considered owned for 2.5 quarters. The depreciation is calculated as: $5,760 (2.5 quarters / 4 quarters) = $3,600.
  18. A manufacturing company purchased and placed in service a new piece of production machinery on August 1 for $140,000. The machinery is classified as 7-year MACRS property. This was the only asset acquisition during the year. The company does not elect any special depreciation options. What is the company's maximum MACRS depreciation deduction for the machinery in the first year?
    Answer: $20,000 The correct answer is $20,000. The machinery is 7-year property depreciated using the 200% declining balance method under MACRS. Since it's the only asset placed in service, the half-year convention applies. The first-year depreciation percentage for 7-year property under the half-year convention is 14.29%. The calculation is: $140,000 * 14.29% = $20,006, which rounds to $20,000.
  19. A farming business acquires $200,000 of new farm machinery (7-year property) on June 1. The business elects to use the 150% declining balance method over the GDS recovery period. What is the first-year depreciation deduction?
    Answer: $21,429 The correct answer is $21,429. The 150% declining balance method is used over the 7-year GDS recovery period, and the half-year convention applies. The straight-line rate is 1/7, or 14.2857%. The 150% DB rate is 14.2857% 1.5 = 21.4286%. For the first year, this rate is applied with the half-year convention. Calculation: $200,000 21.4286% * 0.5 = $21,428.60, rounded to $21,429.
  20. An investor owns a commercial warehouse that was placed in service on April 1, Year 1. The depreciable basis of the warehouse was $780,000. What is the MACRS depreciation deduction for the warehouse in Year 3, a full taxable year?
    Answer: $20,000 The correct answer is $20,000. A commercial warehouse is nonresidential real property, which is depreciated using the straight-line method over 39 years. While the first year's depreciation is prorated based on the month placed in service using the mid-month convention, any subsequent full year of service (like Year 3) receives a full year's straight-line depreciation. The calculation is: $780,000 depreciable basis / 39 years = $20,000.

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