Question

Mason purchased a new business asset (five-year asset) on April 30, 2016 at a cost of

$120,000, and immediately placed the asset in service. Mason did not elect §179, but did

elect to deduct additional first-year depreciation. In 2018, Mason sold the asset for $40,000.

a) Determine the cost recovery for 2016 and 2017 for the asset.

( show work and how you get the percentage)

b) Describe Mason’s tax consequences from the sale of the asset.

( show work and how you get the percentage)

Answer 1

a. Cost Recovery for 2016 is 24,000 and for 2017 is 38400

Below is recovery table:

MACRS depreciation Table
Year	MACRS Deduction Rate	Deduction
1	20%	24,000.00
2	32%	38,400.00
3	19.20%	23,040.00
4	11.52%	13,824.00
5	11.52%	13,824.00
6	5.76%	6,912.00

b. No Tax payable on sale of assets as we will incur loss Capital loss of 17,600.

Sale Value of Assets	40,000.00
Tax Basis of Assets	57,600.00
Capital Loss	(17,600.00)

Assets cost	120,000.00
Cost Recovery-2016	24,000.00
Cost Recovery-2017	38,400.00
Tax Basis of Assets	57,600.00

The tax recovery rate I used is 5 Year MARCS table.

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