Question

At the beginning of the year, Dee began a calendar-year business and placed in service the following assets during the year:

Asset	Date Acquired	Cost Basis
Computer equipment (5 year)	3/23	$5,000
Furniture (7 year)	5/12	$7,000
Pickup truck (5 year)	11/15	$10,000
Commercial building (39 year)	10/11	$270,000

Assuming Dee does not elect §179 expensing or bonus depreciation, determine Dee’s year 1 cost recovery for each asset.

[Hint: (1) Commercial building is a nonresidential real property with 39 years of recovery period. Assume the depreciation percentage for the year is 0.535%.

(2) Assume that Poplock chooses double declining (DB) method.

(3) Note that Poplock uses the mid-quarter [Do you why?] convention for personalty (e.g., computer equipment, furniture, truck) and mid-month convention for realty (e.g., building).]

Answer 1

Using the mid-quarter convention for personal property, cost recovery is calculated as below. Dee is required to use the mid-quarter convention because more than 40 percent of the tangible personal property was placed in service during the 4th quarter. Dee placed 45.45% ($10,000/ ($5,000 + $7,000 + $10,000)) of the tangible personal property in service during the 4th quarter.

Asset	Purchase date	Quarter	Recovery period	(1) Original basis	(2)Rate	(1)*(2) Cost Recovery
Computer equipment	23 - Mar	1st	5 years	$5,000	35%	$1,750
Furniture	12 - May	2nd	7 years	$7,000	17.85%	$1,250
Pickup truck	15 - Nov	4th	5 years	$10,000	5%	$500
Building	11 - Oct	4th	39 years	$270,000	0.535%	$1,445

Total cost recovery = $1,750 + $1,250 + $500 + $1,445 = $4,945