Question

Hamlet acquires a 7 -year class asset on November 23,2021 , for $424,200 (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 tangible personal 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:ℑ
2022:ℑ


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Answer 1

Hamlet's cost recovery deduction for the 7-year class asset acquired in 2021 is $60,583 for the year 2021 and $103,951 for the year 2022, calculated using the MACRS half-year convention at 14.29% and 24.49% respectively.

Step-by-step explanation:

To calculate Hamlet's cost recovery deduction for a 7-year class asset, we use the Modified Accelerated Cost Recovery System (MACRS). According to MACRS, for a 7-year property placed in service in any month other than December, the half-year convention applies.

For assets placed into service in 2021, the first year depreciation rate under the half-year convention for a 7-year property is 14.29%. Since Hamlet placed the asset into service on November 23, 2021, and is not claiming any section 179 expense deduction or bonus depreciation, his deduction for 2021 would be:

Cost x Depreciation Rate = $424,200 x 14.29% = $60,583 (rounded to the nearest dollar).

For 2022, the full year's depreciation rate for a 7-year property under the half-year convention is 24.49%. Thus, the deduction for 2022 would be:

Cost x Depreciation Rate = $424,200 x 24.49% = $103,951 (rounded to the nearest dollar).

Answer 2

Hamlet's cost recovery deduction for a 7-year class asset for 2021 is approximately $63,586, and for 2022, it's around $103,377 using MACRS depreciation percentages.

Step-by-step explanation:

Since Hamlet acquired a 7-year class asset on November 23, 2021, and has chosen not to elect immediate expensing under §179 nor claim any available additional first-year depreciation, the Modified Accelerated Cost Recovery System (MACRS) will be used for depreciation. According to MACRS, for a 7-year property acquired in 2021, the first year depreciation percentage is 14.29%.

For 2021, the cost recovery deduction would be:

Cost of asset x Depreciation percentage = Deduction
$442,200 x 14.29% = $63,586 (rounded to the nearest dollar)

For 2022, since it's the second year, we use the corresponding MACRS percentage for the second year, which is 24.49% for a 7-year property.

For 2022, the cost recovery deduction would be:

$442,200 x 24.49% = $103,377 (rounded to the nearest dollar)

Therefore, Hamlet's cost recovery deductions for the first and second years are approximately $63,586 for 2021 and $103,377 for 2022, respectively.