Question

Sam’s Bakery acquired and placed in service a new oven (7-year class asset) with a cost...

Sam’s Bakery acquired and placed in service a new oven (7-year class asset) with a cost of $18,000 in November 2020. The company is a calendar year taxpayer, and this was the only asset acquired in 2020. Sam’s Bakery disposes of the oven in July 2021. What cost recovery deduction can the company take in 2021? Assume Sam’s did not elect Sec. 179 expense or bonus depreciation.

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Answer #1

Solution:

2020 $              643
2021 $          3,099
Working:
2020 18000*3.57%
2021 18000*27.55%*7.5 Months / 12 Months

Notes:

1)Asset is placed in service in fourth quarter of Calendar year 2020[Mid Quarter Convention is used as more than 40% of the asset in placed in fourth quarter]

2) Disposed in July 2021. So, In calculation we have to consider that asset is disposed in mid of third quarter.i.e., 7.5 Months

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