Question

AMP Corporation (calendar-year-end) has 2019 taxable income of $1,900,000 for purposes of computing the §179 expense. During 2019, AMP acquired the following assets: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.)

	Placed in
Asset	Service		Basis
Machinery	September 12	$	1,310,000
Computer equipment	February 10		375,000
Office building	April 2		490,000
Total		$	2,175,000

a. What is the maximum amount of §179 expense AMP may deduct for 2019?

b. What is the maximum total depreciation, including §179 expense, that AMP may deduct in 2019 on the assets it placed in service in 2019, assuming no bonus depreciation?

Answer 1

Section 179 expense comes with certain limits. The new rates has been kept in Year 2019 and slightly increased from tax year 2018. The caps to the total amount written off is $1,020,000. The limit for year 2019 is $ 2,550,000. The deduction starts to phase out on dollar to dollar basis after $ 2,550,000 is spent by the business. Description JA. Qualified Property placed in 2019 i.e. machinery and computer equipment B.Limit for Section 179 phase-out Amount Explanation $ 1,310,000 + 375,000 Total section 179 qualified property $1,685,000 ($2,550,000) Limit for 2019 JA-B= permanently disallowed. It cannot be less than $0 $1,020,000 $0 From C. $1,020,000 D-E C. Phase out of maximum 179 expense D. maximum 179 before phase out E. Phase out of maximum 179 expense Maximum 179 expense after phase out Hence, the maximum amount of Section 179 expense AMP may deduct for Year 2019 is $ 1,020,000.

B)Depreciation is maximized by applying the $179 expense against 7-year rather than 5-year property useful Original Remianing Asset $179 expenses Rate life Basis Basis Machinery 7 $1,310,000 $1,020,000.00 $290,000.00 14.29% $41,441.00 Computer Equipment 5 $375,000 $375,000.00 20% $75,000.00 Office Building 391 $490,000 $490,000.00 1.82% $8,913.10 Total $2,175,000 $125,354.10 The maximum depreciation deduction is $1,25,354 (half-year convention) Maximum total depreciation expense (including 179 expense) (1020000 + 125,354.10 $1,145,354