Eva purchased office equipment (7-year property) for use in her business. She pa

Question

Eva purchased office equipment (7-year property) for use in her business. She paid $12,600 for the equipment on July 1, 2017. Eva did not purchase any other property during the year. For 2017, her business had net income of $6,000, before depreciation and before considering the election to expense. Eva elects out of bonus depreciation.

a. What is the maximum amount that Eva can elect to expense in 2017 under Section 179?

b. ? ? ? What is the total depreciation (regular depreciation and the amount allowed as a 2017 deduction under the election to expense) on the office equipment for 2017, assuming Eva uses the accelerated method under MACRS and claims the maximum amount allowable under the election to expense?

c. ? ? ? Assuming that Eva elected to expense the equipment in 2017 and that her business has net income in 2018 of $200,000, before depreciation and before considering the election to expense, what is Eva's total depreciation deduction (regular depreciation and the amount allowed under the election to expense) for the equipment for 2018?

Explanation / Answer

a.Deduction under section can be claimed for the actual cost incurred to purchase the asset, but the deduction is restricted to the taxpayers net income from business less depreciation. If the amount claimed as deduction is less than the actual cost of the asset, the difference between the actual cost and deduction caimend under section 179 can be carried forward as an expense .

In the given question, cost of the asset is $12600, hence the taxpayer can claim maximum deduction of 12600$. Any part of $12600 that exceeds the limitation can be carried forward as expense in the following year.

b.Depreciation = $6000 = $6000 election to expense limited to net income.

c.$6600 carryover of expense election from 2017.

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