Question

Dain’s Diamond Bit Drilling purchased the following assets this year.

	Purchase	Original
Asset	Date	Basis
Drill bits (5-year)	Feb-23	$	95,000
Drill bits (5-year)	Jul-20		99,000
Commercial building	Jun-20		315,000

Assume its taxable income for the year was $59,500 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.)

a. What is the maximum amount of §179 expense Dain's may deduct for the year?

b. What is Dain’s maximum depreciation deduction for the year (including §179 expense)?

c. If the February drill bits’ original basis was $2,512,500, what is the maximum amount of §179 expense Dain's may deduct for the year?

d. If the February drill bits’ original basis was $10,782,500, what is the maximum amount of §179 expense Dain's may deduct for the year?

Answer 1

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Answers is highlighted in yellow: As per Tax year 2019: Solution: $ 59,500 Answer: a) Explanation: Amount 194000 Total $179qualified property 2550000 (2019 179 limit) Particulars 1) Total Cost of Property (95000+99000) 2) Threshold for $179 phase-out-2019 3)Phase-out of maximum $179 expense (1-2) 4) Maximum 179 expense before phase-out 5) Phase-out of maximum $179 expense 6) Maximum $179 expense after phase-out (4-5) 7) Taxable income before Section 179 deduction 8) $179 expense after taxable Income limitation, smaller of 6 or 7 1020000 (2019 179 limit) O from (3) 1020000 Maximum upto Taxable Income 59500 59500 90782 Answer: b) Explanation: 179 Ded. Cost 95000 99000 315000 Balance 95000 39500 315000 Drill Bits (5 year) Drill Bits (5 year) Commercial Building (39 year) 179 expense Total Maximum Depreciation 59500 7900 Rate Depreciation 20% 19000 20% 1.391% 4382 59500 90782

$ 59,500 Answer: c) Explanation: Particulars 1) Total Cost of Property (2512500+99000) 2) Threshold for $179 phase-out-2019 3)Phase-out of maximum $179 expense (1-2) 4)Maximum 179 expense before phase-out 5) Phase-out of maximum $179 expense 6) Maximum $179 expense after phase-out (4-5) 7) Taxable income before Section 179 deduction 8)|$179 expense after taxable Income limitation, smaller of 6 or 7 Amount 2611500 Total $179 qualified property 2550000 (2019 179 limit) 61500 1020000 (2019 179 limit) 61500 from (3) 958500 Maximum upto Taxable income 59500 59500 $ - $0 Answer: d) Explanation: Particulars 1) Total Cost of Property (10782500+99000) 2) Threshold for $179 phase-out-2019 3) Phase-out of maximum $179 expense (1-2) 4) Maximum 179 expense before phase-out 5) Phase-out of maximum $179 expense 6) Maximum $179 expense after phase-out (4-5) 7) Taxable Income before Section 179 deduction 8) 5179 expense after taxable income limitation, smaller of 6 or 7 Amount 10881500 Total $179qualified property 2550000 (2019 179 limit) 8331500 1020000 (2019 179 limit) 8331500 from (3) 0 Maximum upto Taxable income 59500