On May 26, 2007, Jamal purchased machinery for $30,000 to be used in his business. He did not elect to expense the equipment under §179 or the bonus. On October 10, 2011, he sells the machinery to a scrap metal dealer. What is his cost recovery deduction for 2011 rounded to the nearest dollar?
a. 0
b. 1340
c. 2679
d. 4287
is it D
To determine the cost recovery deduction for 2011, we need to calculate the accumulated depreciation up until that year. Since Jamal did not elect to expense the equipment under §179 or the bonus depreciation, he likely used the Modified Accelerated Cost Recovery System (MACRS) to depreciate the machinery over its useful life.
MACRS assigns a specific recovery period and depreciation method to different types of assets. Machinery generally falls under the 7-year recovery period. To find the annual depreciation, divide the cost of the machinery ($30,000) by the recovery period (7 years).
Annual depreciation = Cost of machinery / Recovery period
= $30,000 / 7
≈ $4286.67 (rounded to the nearest dollar)
Since Jamal sold the machinery on October 10, 2011, the cost recovery deduction will be prorated based on the number of months he owned the equipment that year. The machinery was owned for approximately 10 months in 2011 (from January to October).
Cost recovery deduction for 2011 = (Annual depreciation) x (Number of months owned in 2011) / 12
= $4286.67 x 10 / 12
≈ $3572.22 (rounded to the nearest dollar)
Therefore, the cost recovery deduction for 2011 rounded to the nearest dollar is approximately $3572.22.
The correct option would be c. 2679 (since the nearest dollar is 2679).