CPA Exam — REG (Regulation)Federal Taxation of Property TransactionsMedium
A partnership, Delta LLC, purchased a new machine for $150,000 on January 1, 2023. The machine is 7-year MACRS property. Delta LLC did not elect Section 179 expense or bonus depreciation. What is the MACRS depreciation deduction for 2023?
- A$10,714
- B$21,429
- C$26,790
- D$30,000
Show answer & explanationAnswer & explanation
Correct answer: B. $21,429
For 7-year MACRS property, the half-year convention applies by default. The depreciation rate for 7-year property in the first year using the half-year convention is 14.29%. Therefore, the depreciation deduction is $150,000 * 0.1429 = $21,435 (rounded, matches option B).
Why the other options are wrong
- A. This option uses an incorrect depreciation rate or method.
- C. This option might be a miscalculation or incorrect rate for a different convention.
- D. This option represents a straight-line depreciation over 5 years or an incorrect rate.
MACRS Half-Year Convention
The half-year convention assumes all property placed in service or disposed of during a tax year is placed in service or disposed of at the midpoint of that year, regardless of the actual date.
- Applies to most personal property.
- First year depreciation is effectively halved.
- Standard convention unless mid-quarter convention applies.
Memory trick: MACRS: 'Meet the Rate, Mind the Convention, Maximize the Deduction.'