6. Everest Corp. acquires a machine (seven - year property) on January 10, 2016

Question

6. Everest Corp. acquires a machine (seven - year property) on January 10, 2016 at a cost of $2,022,000. Everest makes the election to expense the maximum amount under Sec. 179. The machine does not qualify for bonus depreciation. Assume that the taxable income from trade or business is $1,500,000. (1) What is the amount of the Section 179 expensing deduction for the current year? (2) What is the amount of the Section 179 carryover to the next tax year? (3) What is the amount of depreciation allowed?

Explanation / Answer

(1) Section 179 : Expense deduction in the current year is $478,000. ( 500,000 - (2022000-2000000))

The Section 179 Deduction is $500,000 for current year. This means tax payers can deduct the full cost of equipment up to $500,000, with threshold of $2,000,000. The full deduction can be claimed until that $2,000,000 number is reached. Once that happens, the deduction decreases on a dollar for dollar basis an fully exhaused once 2,500,000 is reached.

(2) Sec 179 Caryover : $0.Nil amount. The entire amount can be utilised in the current year since the taxable income is 1,500,000 which is more than the sec 179 deduction amount.

(3) Depreciation allowed : $154,400. Since there is no bunus depreciation , normal depreciation would be allowed :

10 percent on purchase price of the machine less Section 179 deduction.(10 % * (2022,000 -478,000)) = 154,400.

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