15 year recovery property costing $4,000,000 was placed in service in oct 2012.

Question

there was no disposition of the property.taxpayer had taxable income of $1,175,000 before cost recovery deduction.whats the maximum cost recovery deduction for year 3?

Answer 1

Assuming that the majority of the cost recovery property was placed in service in the last quarter of the year, the mid-quarter convention method must be used. This results in a very low depreciation deduction for year 1 but catches up in later years. In year 3 there would be $355,600 depreciation deduction. Taxable income limitation would not be a factor.