CPA Exam — REG (Regulation)Federal Taxation of Property TransactionsMedium
A sole proprietor, Mr. Davies, purchased a commercial truck for $60,000 on March 1, 2023. The truck is 5-year MACRS property. He elected not to take Section 179 expense or bonus depreciation. Using the half-year convention, what is the MACRS depreciation deduction for 2023? (MACRS 5-year property rates: Year 1: 20.00%, Year 2: 32.00%, Year 3: 19.20%, Year 4: 11.52%, Year 5: 11.52%, Year 6: 5.76%)
- A$19,200
- B$12,000
- C$6,000
- D$0
Show answer & explanationAnswer & explanation
Correct answer: B. $12,000
For 5-year MACRS property using the half-year convention, the first-year depreciation rate is 20.00%. The depreciation deduction for 2023 is $60,000 * 20.00% = $12,000.
Why the other options are wrong
- A. This is the third-year depreciation rate multiplied by the basis, which is incorrect for the first year.
- C. This might be a miscalculation, perhaps using a 10% rate.
- D. This would imply no depreciation, which is incorrect for an asset placed in service.
MACRS Half-Year Convention
A depreciation convention under MACRS that assumes all property placed in service or disposed of during a tax year was placed in service or disposed of at the midpoint of that year, regardless of the actual date.
- Applies to most personal property.
- Results in half of a full year's depreciation in the first and last year.
- Built into MACRS depreciation tables.
- Mid-quarter convention applies if more than 40% of property is placed in service in Q4.
Memory trick: MACRS is 'MA'gical 'C'alculations 'R'educe 'S'ales.