Question

Problem 8-43 (LO. 2, 3, 9)

On June 5, 2018, Javier Sanchez purchased and placed in service a new 7-year class asset costing $560,000 for use in his landscaping business, which he operates as a single member LLC (Sanchez Landscaping LLC). During 2018, his business generated a net income of $945,780 before any § 179 immediate expense election. Rather than using bonus depreciation, Javier would like to use § 179 to expense $200,000 of this asset and then use regular MACRS to cost recover the remaining cost.

If required round your intermediate computations and final answers to the nearest dollar. Click here to access the depreciation table to use for this problem.

a. Determine the cost recovery deductions (including first year additional depreciation) that Javier Sanchez can claim with respect to this asset in 2018 and 2019.
Total cost recovery deduction in 2018: $
Total cost recovery deduction in 2019: $

b. Complete Javier's Form 4562 (page 1) for 2018.

Note: For 2018, the maximum § 179 is $1,000,000 and the threshold amount is $2,500,000. If an amount is zero, enter "0". Enter amounts as positive numbers.

Form 4562 Department of the Treasury Internal Revenue Service (99) Depreciation and Amortization (Including Information on Listed Property) ▶ Attach to your tax return. ▶ Information about Form 4562 and its separate instructions is at www.irs.gov/form4562. OMB No. 1545-0172 2018 Attachment Sequence No. 179 Name(s) shown on return Javier Sanchez Business or activity to which this form relates Sanchez Landscaping, LLC Identifying number 123-45-6789 Part I Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I. 1 Maximum amount (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 Total cost of section 179 property placed in service (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 Threshold cost of section 179 property before reduction in limitation (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . 3 4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. If married filing separately, see instructions 5 6 (a) Description of property (b) Cost (business use only) (c) Elected cost Landscaping equipment 7 Listed property. Enter the amount from line 29 . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9 Tentative deduction. Enter the smaller of line 5 or line 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 10 Carryover of disallowed deduction from line 13 of your 2017 Form 4562 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5 (see instructions) . . . . 11 12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11 . . . . . . . . . . . . . . . . . . . . . . . . 12 13 Carryover of disallowed deduction to 2019. Add lines 9 and 10, less line 12. . . . . . ▶ 13 Note: Don't use Part II or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don't include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 15 Property subject to section 168(f)(1) election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16 Other depreciation (including ACRS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Part III MACRS Depreciation (Don't include listed property. See instructions.) Section A

Answer 1

a. Determine the cost recovery deductions (including first year additional depreciation) that Javier Sanchez can claim with respect to this asset in 2018 and 2019.

Date of Asset purchased and placed in service :	June 5, 2018
Description of property :	Landscaping equipment
Cost of Asset :	$ 560,000

Below is computation for cost recovery deduction for year 2018 & 2019 for Sanchez Landscaping LLC

Total cost recovery deduction in 2018
Section 179 Expense (Elected)	$ 200,000
Bonus Depreciation (not opted by Taxpayer)	$ 0
MACRS Depreciation (2018) - as per MACRS Table	$ 51,444
Total cost recovery deduction in 2018	$ 251,444

Total cost recovery deduction in 2019
Section 179 Expense (Elected)	$                    0
MACRS Depreciation (2019)- as per MACRS Table	$             88,164
Total cost recovery deduction in 2019	$             88,164

MACRS Depreciation Table

Total Cost of Asset	$           560,000
Section 179 Expense (Elected)	$        (200,000)
Basis for MACRS	$           360,000

Year	Rate	Amount
2018	14.29%	$ 51,444	[$ 360,000 * 14.29%]
2019	24.49%	$ 88,164	[$ 360,000 * 24.29%]

b. Complete Javier's Form 4562 (page 1) for 2018.

Form 4562 Information complete only to the extend information available in problem, Complete Form not filled

Part I	Election To Expense Certain Property Under Section 179 [Form 4562]	Year 2018
1	Maximum amount (see instructions) . . . . . .	$     1,000,000
2	Total cost of section 179 property placed in service	$         560,000
3	Threshold cost of section 179 property before reduction in limitation	$     2,500,000
4	Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0-	$                   0
5	Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-.	$                   0
6	(a) Description of property : Landscaping equipment.
	(b) Cost (business use only)	$         560,000
	(c) Elected cost	$         200,000
7	Listed property. Enter the amount from line 29 (Information not available)
8	Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7	$         200,000
9	Tentative deduction. Enter the smaller of line 5 or line 8	$         200,000
10	Carryover of disallowed deduction from line 13 of your 2017 Form 4562 (Information not available)
11	Business income limitation. Enter the smaller of business income (not less than zero) or line 5
12	Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11