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In July of 2017 a taxpayer purchased a new computer system for $3800. (1) What is...

In July of 2017 a taxpayer purchased a new computer system for $3800. (1) What is the total depreciation if he claims special depreciation? (2) What is the total depreciation if he opts out of special depreciation? The only options to answer this question are either 380, 760, 1900 or 2280. 2850 is not an option.

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Answer #1

Answer: Option 1 Opts for Special depreciation

Cost of new Computer = $3,800

Special Depreciation or Bonus Depreciation before September 2017 is 50% of qualifying Assets

Bonus Depreciation is 50% as the Asset was purchased in July 2017.

Bonus/special Depreciation in first year = $3,800 X 50% = $1,900

Cost basis after special/bonus Depreciation = $3,800 - $1,900 = $1,900

Life of computer is 5 years or 20% per year

Regular Depreciation = $1,900 / 5 = $380

Total Depreciation = $1,900 + $380 = $2,280

Option 2 Opts out of Special depreciation

Cost of Computer = $3,800

Life of computer is 5 years or 20% per year

Regular Depreciation = $3,800 / 5 = $760

Total Depreciation = $760

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