Question

Chad, a sole proprietor of a private boat charter business, purchased and placed into service ten...

Chad, a sole proprietor of a private boat charter business, purchased and placed into service ten boats for $260,000 each on May 1, Year 1. These were the only assets Chad placed into service in Year 1. Assume the boats have a 10 year MACRS recovery period. What is the maximum amount, if any, that Chad can deduct in Year 1 if he does not elect out of bonus depreciation?

Multiple Choice

  • $2,600,000

  • $800,000

  • $900,000

  • $1,000,000

Business   Accounting   
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Homework Answers

Answer #1

Bonus depreciation helps in taking 100% deduction of cost in the first year of the asset available to use. It doesn't have any maximum limit (Section 179 deduction have a limit).

In the given case, we can total amount of cost of Boats in the year of purchase. Total deduction will be $2,600,000 ($260,000 x 10) (Full year convention).

The asset is eligible for Bonus depreciation as

1. The useful life is not exceeding 20 years

2. The asset is purchased from unrelated party (assumed as nothing given in question)

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