Assume that Timberline Corporation has 2015 taxable income of $240,000 before th

Question

Assume that Timberline Corporation has 2015 taxable income of $240,000 before the §179 expense (assume the 2014 §179 limits are extended to 2015).

a) What is the maximum amount of §179 expense Timberline may deduct for 2015? What is Timberline’s §179 carryforward to 2016, if any?

b) What would Timberline’s maximum depreciation expense be for 2015 assuming no bonus depreciation?

c) What would Timberline’s maximum depreciation expense be for 2015 if the furniture cost $2,000,000 instead of $350,000 and assuming no bonus depreciation?

Asset Purchase Date Basis Furniture (7-year) 1-Dec $        350,000 computer equipment (5-year) 28-Feb $          90,000 Copier (5-year) 15-Jul $          30,000 Machinery (7-year) 22-May $        480,000 Total $        950,000

Explanation / Answer

a)

a) What is the maximum amount of §179 expense Timberline may deduct for 2015? What is Timberline’s §179 carry forward to 2016, if any?

b)

The 1/ 2 year system applies since only 15.49% of its personal property was placed for service in the 4 quarter (($350,000 – 240,000)/(950,000 –240,000)=110,000/710,000).(Because the half quarter test is applied after taking §179 expense, it is optimal to take the $ 179 expense against qualified system placed in 4 th quarter

Timberline deprecation expenses = $ 348311

Following are the calculations

c)

What would Timberline’s maximum depreciation expense be for 2015 if the furniture cost $2,000,000 instead of $350,000 and assuming no bonus depreciation?

Answer :

Description Amount Explanation Property placed in service $950,000 Total qualified assets Threshold for §179 phase-out 2000000 2015 amount (§179(b)(2)) Phase-out of maximum §179 expense 0 (1) – (2) (permanently disallowed Maximum 179 expense before phase-out $500,000 (2015 amount (§179(b)(1)) Phase-out of maximum §179 expense 0 From (3) Maximum §179 expense after phase-out $500,000 (4) – (5) Taxable income before §179 deduction $240,000 Given in problem §179 expense after taxable income limitation $240,000 Lesser of (6) and (7) §179 carry forward to next year $260,000 (6) – (8)

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