Calculate Depreciation Using MACRS
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CPA Regulation (REG) › Calculate Depreciation Using MACRS
On July 1, 2025, an S Corporation purchased and placed in service new office furniture (tangible personal property) costing $50,000 for use in its administrative office. The furniture is 7-year MACRS property (GDS) and the half-year convention applies; no Section 179 expense or bonus depreciation is elected. Calculate the MACRS depreciation for 2025.
$5,000
$3,575
$8,930
$7,145
Explanation
This question tests MACRS depreciation for office furniture as tangible personal property under GDS with the half-year convention. The furniture is 7-year property costing $50,000, placed in service on July 1, 2025 (third quarter), without Section 179 or bonus depreciation. The correct deduction follows IRS guidelines using the 14.29% first-year rate, yielding $50,000 × 14.29% = $7,145. Choice B ($5,000) incorrectly applies a 10% rate, perhaps confusing with straight-line; choice C ($8,930) uses the 17.86% mid-quarter rate for third quarter; choice D ($3,575) halves the correct amount erroneously. For MACRS calculations, always determine the property's class life to select the recovery period, apply the convention, and use the corresponding percentage from IRS tables. This framework highlights the importance of matching the asset to its IRS-defined class life for compliant depreciation scheduling.
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?
$14,580
$8,571
$17,148
$24,000
Explanation
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.