VIPSolutionsHamlet places in service a 7 - year class asset on November 2 3 , 2 0 2 4 , for $ 2 1 4 , 2 0 0 ( the only asset acquired during the year ) . Hamlet does not elect immediate expensing under § 1 7 9 . He does not claim any available additional first year depreciation. This is Hamlet's only tangible personal property acquisition for the year. Calculate Hamlet's cost recovery deduction for 2 0 2 4 and 2 0 2 5 . explain and give final summary
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Hamlet places in service a 7 - year class asset on November 2 3 , 2 0 2 4 , for $ 2 1 4 , 2 0 0 ( the only asset acquired during the year ) . Hamlet does not elect immediate expensing under § 1 7 9 . He does not claim any available additional first year depreciation. This is Hamlet's only tangible personal property acquisition for the year. Calculate Hamlet's cost recovery deduction for 2 0 2 4 and 2 0 2 5 . explain and give final summary
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Asked by: sreegeeth
Created at: 2025-07-26 12:32:20
Asked by: sreegeeth
Created at: 2025-07-26 12:32:20
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Let's break down the problem:
- **Asset:** 7-year class property
- **Placed in service:** November 23, 2024
- **Cost:** $214,200
- **No §179 deduction elected**
- **No bonus (first-year) depreciation claimed**
- **This is the only asset acquired during 2024**
We need to calculate the cost recovery (depreciation) deduction for **2024** and **2025** using MACRS.
---
## Step 1: Determine Applicable Depreciation Method and Convention
**MACRS 7-year property** uses the **200% Declining Balance** method, switching to straight-line when advantageous.
### Convention
- Since the asset was placed in service in the last quarter (**after October 1, 2024**), and it is the only asset, the **mid-quarter convention** applies (IRC §168(d)(3)).
- For a Q4 asset, in the first year, you get **1.5 months of depreciation** (i.e., 12.5% of the year's depreciation).
---
## Step 2: Find MACRS Rates
From IRS **MACRS tables** for 7-year property, **mid-quarter convention, fourth quarter placed in service** (see IRS Pub 946, Table A-5):
| Year | Depreciation Rate |
|------|------------------|
| 1 | 3.57% |
| 2 | 27.55% |
| 3 | 19.68% |
| 4 | 14.06% |
| 5 | 10.15% |
| 6 | 10.15% |
| 7 | 10.16% |
| 8 | 4.68% |
---
## Step 3: Calculate Deductions
### **2024 (Year 1):**
- Depreciation Rate: **3.57%**
- Deduction: $214,200 × 0.0357 = **$7,646.94**
### **2025 (Year 2):**
- Depreciation Rate: **27.55%**
- Deduction: $214,200 × 0.2755 = **$58,970.10**
---
## **Final Summary Table**
| Year | Depreciation Rate | Deduction |
|------|------------------|---------------|
| 2024 | 3.57% | $7,646.94 |
| 2025 | 27.55% | $58,970.10 |
---
## **Brief Explanation**
- Since the asset was placed in service in the fourth quarter, the **mid-quarter convention** applies, resulting in a lower first-year deduction.
- No §179 or bonus depreciation is claimed, so only MACRS applies.
- The IRS table for 7-year, mid-quarter, Q4 property provides the rates.
---
### **Summary**
**Hamlet's cost recovery deductions are:**
- **2024:** $7,646.94
- **2025:** $58,970.10
Let me know if you need the full depreciation schedule for all years!
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