# Way Corporation 2025 Depreciation Deduction Calculation This problem involves computing MACRS depreciation for each asset disposed of in 2025, **ignoring §179 expensing and bonus depreciation**. We'll use the appropriate MACRS tables and conventions (Half-Year (HY) or Mid-Quarter (MQ)) and apply the correct percentage for each asset, considering the acquisition and disposal dates. --- ## Step 1: List of Assets and Key Data | Asset | Class Life | Date Acquired | Date Sold | Convention | Basis | |-----------------|------------|--------------|-------------|------------|----------| | Furniture | 7-year | 5/12/21 | 7/15/25 | HY | $87,500 | | Machinery 1 | 7-year | 3/23/22 | 3/15/25 | MQ | $104,500 | | Delivery truck | 5-year | 9/17/23 | 3/13/25 | HY | $46,000 | | Machinery 2 | 7-year | 10/11/24 | 8/11/25 | MQ | $303,800 | | Computer | 5-year | 10/11/25 | 12/15/25 | HY | $106,000 | - *Delivery truck is not a luxury auto and is 100% business use.* --- ## Step 2: Determine Depreciation Conventions - **Half-Year (HY):** Assets treated as placed in service or disposed of in mid-year. - **Mid-Quarter (MQ):** Used if more than 40% of depreciable basis is placed in service in the last quarter of the year. Conventions already given in the problem. --- ## Step 3: Find MACRS Percentages **Tables Used:** - Table 1: 5-year MACRS (200% DB), Half-Year - Table 2: 7-year MACRS (200% DB), Half-Year - Exhibit 10-6: Mid-Quarter convention percentages ### A. Furniture (7-year, HY, Placed 5/12/21, Sold 7/15/25) - Placed: 2021 - Sold: 2025 (HY convention) - **Years Depreciated:** 2021, 2022, 2023, 2024, 2025 (5th year, partial) #### MACRS Percentages (from Table 2) | Year | Percentage | |------|------------| | 1 | 14.29% | | 2 | 24.49% | | 3 | 17.49% | | 4 | 12.49% | | 5 | 8.93% | - **2025 is Year 5.** Since asset is disposed under HY convention, use ½ of Year 5 percentage: \[ \text{2025 depreciation} = \$87,500 \times \frac{8.93\%}{2} = \$87,500 \times 4.465\% = \$3,905 \] ### B. Machinery 1 (7-year, MQ, Placed 3/23/22, Sold 3/15/25) - Placed: Q1 2022 - Sold: Q1 2025 (MQ convention) - **Years Depreciated:** 2022, 2023, 2024, 2025 (4th year, disposed in Q1) #### MACRS MQ Table (Exhibit 10-6, 7-year, Q1) | Year | Percentage | |------|------------| | 1 | 10.71% | | 2 | 19.13% | | 3 | 13.69% | | 4 | 9.79% | - **2025 is Year 4.** Since disposed in Q1, use 9.79% × ½ (mid-quarter convention): \[ \text{2025 depreciation} = \$104,500 \times \frac{9.79\%}{2} = \$104,500 \times 4.895\% = \$5,116 \] ### C. Delivery Truck (5-year, HY, Placed 9/17/23, Sold 3/13/25) - Placed: 2023 - Sold: 2025 (HY convention) - **Years Depreciated:** 2023, 2024, 2025 (3rd year, partial) #### MACRS Table 1 (5-year, HY) | Year | Percentage | |------|------------| | 1 | 20.00% | | 2 | 32.00% | | 3 | 19.20% | - **2025 is Year 3.** Disposed under HY convention: use ½ of Year 3 percentage: \[ \text{2025 depreciation} = \$46,000 \times \frac{19.20\%}{2} = \$46,000 \times 9.60\% = \$4,416 \] ### D. Machinery 2 (7-year, MQ, Placed 10/11/24, Sold 8/11/25) - Placed: Q4 2024 - Sold: Q3 2025 (MQ convention) - **Years Depreciated:** 2024, 2025 (2nd year, disposed in Q3) #### MACRS MQ Table (Exhibit 10-6, 7-year, Q4) | Year | Percentage | |------|------------| | 1 | 3.57% | | 2 | 31.25% | - **2025 is Year 2.** Disposed in Q3, use 31.25% × ¾ (3 out of 4 quarters): \[ \text{Prorate factor} = \frac{2.5}{4} = .625 \] However, under MQ convention, you use only ½ of the second year percentage if disposed in the same year as the second year. But, since sold in Q3, compute depreciation for portion of the year before sale: For MQ convention, the IRS expects you to use the applicable table percentage for the year of disposal, then multiply by the basis, and if disposed before year end, reduce by half for the quarter of disposal. **Safer to use:** \[ \text{2025 depreciation} = \$303,800 \times 31.25\% \times .5 = \$47,469 \] (If you want to be more precise, you could prorate for the months held in year of disposal, but for MACRS, the above is standard.) ### E. Computer (5-year, HY, Placed 10/11/25, Sold 12/15/25) - Placed: 2025 - Sold: 2025 (HY convention) - **Only one year, disposed same year.** #### MACRS Table 1 (5-year, HY) | Year | Percentage | |------|------------| | 1 | 20.00% | - For assets disposed in the same year as placed, use ½ of first year percentage: \[ \text{2025 depreciation} = \$106,000 \times \frac{20.00\%}{2} = \$106,000 \times 10.00\% = \$10,600 \] --- ## Step 4: Summary Table | Asset | 2025reciation | |-----------------|-----------------------| | Furniture | $3,905 | | Machinery 1 | $5,116 | | Delivery truck | $4,416 | | Machinery 2 | $47,469 | | Computer | $10,600 | | **Total** | **$71,506** | --- ## Step 5: **Final Summary** **Way Corporation's 2025 depreciation deduction for the assets disposed of is:** \[ \boxed{\$71,506} \] --- ### **Summary of Steps** 1. **Identified assets' class life, basis, conventions, and dates.** 2. **Applied the correct MACRS tables and conventions.** 3. **Calculated partial year depreciation for disposed assets.** 4. **Summed all allowable 2025 depreciation deductions.** --- ### **References** - IRS Publication 946 for MACRS conventions and tables. - MACRS Table 1 (5-year), Table 2 (7-year), Exhibit 10-6 (Mid-Quarter percentages). --- If you need to see the specific tables or want more precise calculation based on actual IRS tables, let me know!