On June 26, 2004, Elaine purchased and placed into service a new computer system costing $8,000. The computer system was used 80 percent for business and 20 percent for personal use in both 2004 and 2005. Elaine claimed only regular MACRS depreciation. In 2006, the computer system was used 45 percent for business and 55 percent for personal use.
What is the question?
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To calculate the depreciation expense for Elaine's computer system, we need to consider the factors provided. Let's break it down step by step:
1. Determine the depreciation method: Elaine claimed regular Modified Accelerated Cost Recovery System (MACRS) depreciation. MACRS is a depreciation system used for tax purposes in the United States. Different classes of assets have different depreciation methods and recovery periods.
2. Determine the recovery period: The recovery period for computers and computer equipment under MACRS is usually 5 years.
3. Determine the business use percentage: In 2004 and 2005, the computer system was used 80% for business and 20% for personal use. In 2006, the business use percentage changed to 45% while the personal use percentage became 55%.
4. Calculate the depreciation for each year:
- Year 2004: Since the computer was placed into service in June 2004, only half a year of depreciation will be claimed. The business use percentage of 80% is applied to the half-year amount. Assuming a 5-year recovery period, the depreciation expense for the first year is calculated as follows: $8,000 x 50% x 80% = $3,200.
- Year 2005: The computer system is still considered in its first year of service, but now for the entire year. The business use percentage of 80% is applied for the full year. Thus, the depreciation expense for the second year is calculated as follows: $8,000 x 80% = $6,400.
- Year 2006: By this year, the computer system is considered in its second year of service. The business use percentage of 45% is applied for the full year. Thus, the depreciation expense for the third year is calculated as follows: $8,000 x 45% = $3,600.
Therefore, the depreciation expenses for each year are as follows:
- Year 2004: $3,200
- Year 2005: $6,400
- Year 2006: $3,600
Please note that this is a simplified calculation based on the information provided. In a real tax situation, additional factors may need to be considered, such as bonus depreciation, Section 179 expense election, or other applicable rules or limitations. It is always recommended to consult with a tax professional or accountant for precise calculations.