Question

At the beginning of its 2019 tax year, Hiram owned the following business assets: Furniture Equipment Machinery Date Placed in Service 6/19/17 5/2/16 9/30/16 Initial Cost $46,250 89,000 80,500 Accumulated Depreciation $17,936 63,368 57,316 Recovery Period 7-year 5-year 5-year Depreciation Convention Half year Half-year Half-year On July 8, Hiram sold its equipment. On August 18, it purchased and placed in service new tools costing $612,000; these tools are three-year recovery property. These were Hiram's only capital transactions for the year. Compute Hiram's maximum cost recovery deduction for 2019. In making your computation, assume that taxable income before depreciation exceeds $1,230,000. Use Table 7-2. (Enter all amounts as positive values. Round your intermediate computations and final answers to the nearest whole dollar amount.) 2019 MACRS Depreciation Furniture Equipment Machinery Total MACRS Depreciation Section 179/bonus on new tools Total 2019 cost recovery

Answer 1

Explanation

Hiram can expense and deduct $500,000 of the cost of the tools purchased in 2019 under Section 179. Of the remaining cost of $1,12,000 30 percent ($33600) is deductible through bonus depreciation and the remainder is deductible through MACRS depreciation. Because the equipment was sold during the year, its recovery percentage must be adjusted to reflect the half-year convention in year of disposition.

	Initial Cost Basis	Recovery Period	Year Recovery Percentage 2019	MACRS Depreciation
Furniture	$30,750	Year 3	17.49%	$5,378
Equipment	70,000	Year 4	11.52%× 1/2	$4032
Machinery		Year 4	11.52%	$6,682
Tools		Year 1	33.33%	$13165
Total				$29257
Section 179				$500000
Bonus depreciation				$33600
Total 2019 cost recovery				$562857