Question

Assume that ACW Corporation has 2018 taxable income of $1,020,000 for purposes of computing the §179 expense. The company acquired the following assets during 2018 (assume no bonus depreciation): (Use MACRS Table 1, Table 2, and Table 5). Assume that the qualified improvement property has satisfied the conditions mentioned under Section 179(f)(2) Asset Placed in Service Basis Machinery Computer equipment Delivery truck Qualified improvement property Total 12-Sep 10-Feb 21-Aug 2-Apr $ 472,000 72,800 95,000 1,382,000 $2,021,000 a. What is the maximum amount of S179 expense ACW may deduct for 2018? b. What is the maximum total depreciation that ACW may deduct in 2018 on the assets it placed in service in 2018? (Round your intermediate computations to the nearest whole dollar amount.) a. $179 expense for 2018 b.otal deductible depreciation for 2018

Answer 1

Deduction limit under the 2018 Section 179 = $ 1,000,000

The 2018 Section 179 Deduction threshold = $ 2,500,000

Please see the table below:

Description	Amount ($)	Basis / Linkage
Qualifying property placed in service in 2018 (A)	2,021,000	Total value given in question
Threshold for Section 179 phase out (B)	2,500,000	Please see the second line above the table
Phase out of maximum Section 179 expense (C)	0	max(A - B, 0)
Maximum Section 179 expense deduction limit before phase out (D)	1,000,000	Please see the first line above the table
Maximum amount of section 179 expense ACW may deduct for 2018	1,000,000	max (D - C, 0)

Hence, maximum amount of section 179 expenses ACW may deduct for 2018 = $ 1,000,000

Part (b)

Depreciation:

• Apply the 179 expense against the qualified real property first up to its maximum amount and
• Then apply the balance corresponding to the 7 - year property upto its maximum amount and
• Then apply the balance corresponding to the 5 year property

Qualified real property original basis is 1,382,000 > 1,000,000 = maximum amount of section 179 expenses

Hence the entire 179 expense deduction will be applied to Qualified real property.

Please see the table below: The second line in each column explains how each calculation has been done.

Asset	Life allowed (years)	Original Basis	179 expense	Remaining basis	Depreciation Rate	Reference for depreciation rate	Depreciation
		A	B	C = A - B	D		E = D x C
Machinery (7 year)	7	472,000	-	472,000	14.29%	Table 1: Year 1 depreciation rate under half year convention for 7 years	67,449
Computer equipment (5 year)	5	72,000	-	72,000	20.00%	Table 1: Year 1 depreciation rate under half year convention for 5 years	14,400
Delivery truck (5 year)	5	95,000	-	95,000	20.00%	Table 1: Year 1 depreciation rate under half year convention for 5 years	19,000
Qualified improvement property (15 year)	15	1,382,000	1,000,000	382,000	5.00%	Table 1: Year 1 depreciation rate under half year convention for 15 years	19,100
Total		2,021,000	1,000,000	1,021,000			119,949

So, the maximum total depreciation ACW can deduct in 2018 on the assets it placed in service in 2018 = $ 119,949 + Section 179 expense of 1,000,000 = $ 1,119,949