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. $1,340
C. $2,679
D. $4,287
is it B
To determine the cost recovery deduction for 2011, we need to calculate the depreciation expense for the machinery from May 26, 2007, to October 10, 2011.
First, let's determine the applicable recovery period for the machinery. Since it was not elected to be expensed under §179, we will use the Modified Accelerated Cost Recovery System (MACRS) recovery periods. For machinery, the recovery period is typically 7 years.
Next, we need to find the depreciation percentage for the 7-year recovery period in 2011. The IRS provides a MACRS depreciation table with percentages for each year of the recovery period. Since the machinery was purchased in 2007, we need to use the percentages for the 5th year of the recovery period, which is 2011.
According to the MACRS depreciation table for the 7-year recovery period, the depreciation percentage for the 5th year is 17.49%.
Now, we can calculate the depreciation expense for 2011. The formula is:
Depreciation expense = (Initial cost of machinery) x (Depreciation percentage for the applicable year)
Depreciation expense = $30,000 x 0.1749
Depreciation expense = $5,247
Finally, we round the depreciation expense to the nearest dollar, which gives us:
Depreciation expense for 2011 = $5,247
Therefore, the correct answer is not B. It should be:
D. $4,287 (rounded to the nearest dollar)