Question

Part 3 of 4 Required information (The following information applies to the questions displayed below.] Dain's Diamond Bit Drilling purchased the following assets this year. points Skipped Asset Drill bits (5-year) Drill bits (5-year) Commercial building Purchase Date January 25 July 25 April 22 Original Basis $ 90,000 95,000 220,000 eBook Print References Assume its taxable income for the year was $53,000 for purposes of computing the $179 expense (assume no bonus depreciation). (Use MACRS Table 1. Table 2, Table 3. Table 4 and Table 5.) (Leave no answer blank. Enter zero if applicable.) c. If the January drill bits' original basis was $2,875,000, what is the maximum amount of $179 expense Dain's may deduct for the year? $179 expense

Answer 1

If the January drill bits original basis was $2,875,000. Section 179 is limited to $1,000,000 for the year 2018 and applies only to amounts spent on personal property.

Total eligible assets for section 179 expense $2,875,000 + $95,000 = $2,970,000.

The limit of $1,000,000 is reduced by any amount over $2,500,000.

Reduction = $2,970,000 - $2,500,000 = $470,000

Amount of eligible section 179 expense = $1,000,000- $470,000 = $530,000. However, this deduction would not be permitted when net loss exists or the deduction would create a net loss. As the taxable income here is only $53,000, the section 179 expense would not be allowed. Thus, section 179 expense is nil.

Please note that the amounts of $1,000,000 and $2,500,000 are indexed for inflation. So for year end 2019 the amount would change.

If the January drill bits original basis was $3,875,000. Section 179 is limited to $1,000,000 for the year 2018 and applies only to amounts spent on personal property.

Total eligible assets for section 179 expense $3,875,000 + $95,000 = $3,970,000.

The limit of $1,000,000 is reduced by any amount over $2,500,000. As the amount is over $3,500,000 no section 179 expense would be allowed and the deduction would be nil.

Please note that the amounts of $1,000,000 and $2,500,000 are indexed for inflation. So for year end 2019 the amount would change.