Election to Expense Assets (LO. 5) Firefly, Inc., acquires business equipment in

Question

Election to Expense Assets (LO. 5) Firefly, Inc., acquires business equipment in July 2017 for $2,037,600. Assume that Firefly elects not to claim bonus depreciation. a. Firefly's maximum Section 179 deduction for 2017 is b. Any portion of the annual limit not deducted in 2017 is lost forever c. The depreciable basis of the equipment is 21,240 182,520X Feedback Check My Work Section 179 - Under this provision, taxpayers are allowed to expense up to $510,000 (2017) of the cost of tangible personal property used in a trade or business. Amounts expensed under this provision reduce the depreciable basis of the property. The amount of the annual deduction limit is reduced when purchases of qualifying property exceed $2,030,000 in 2017. In addition, the deductible amount cannot exceed the taxable income from the active conduct of all the taxpayer's trade or business activities

Explanation / Answer

a Answer :- $462,400

Reason:- Because firefly acquired over $500000 for qualifying section 179 property, the annual investment limit applies. Firefly section 179 deductionfor is reduced by $1537600 ($2037600 - $500000) and its section 179 deductionfor is limited to $462400.

b Answer :- Is lost forever. Annual investment limit rules provides for no carry forward provisions.

c Answer:- $157,520 Because, the acquisition cost of the equipment is reduced by the amount of the section 179 election for the current year. Therefore, ($2037600 - $462400) is $1575200/10 = $157520 is the Depreciation basis of the equipment.

Note:- 2017 deduction limits is $510,000

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