Homework Answers
The question has mentioned that Company makes investment in June of current year. Hence I am considering June 2020 as the period of investment. Hence I am using the latest IRS ruling with respect to Sec. 179 deduction.
| Maximum Deduction u/s 179 | Amount |
| Turning lathes | $1,603,000 |
| Buses | $975,000 |
| Total investment | $2,578,000 |
| Limit | $2,590,000 |
| Investment in excess of limit | $0 |
| Maximum deduction u/s 179 | $1,040,000 |
Hence maximum deduction u/s 179 is $1,040,000
Depreciable basis of the assets assuming maximum deduction u.s 179 is as follows. There is option to choose the asset from which deduction u/s 179 to be reduced. It will be beneficial to choose the asset that has a long recovery period. Hence turning lathes is choosed
| Depreciable Basis | Gross | Deduction u/s 179 | Depreciable Basis |
| Turning lathes | $1,603,000 | $1,040,000 | $563,000 |
| Buses | $975,000 | $975,000 |
First year depreciation is $1,315,452.70 as shown in the table below.
| Category | Amount |
| Turning lathes - Section 179 deduction | $1,040,000.00 |
| Turning lathes - MACRS ($563,000 * 14.29%) | $80,452.70 |
| Buses - MACRS ($975,000 * 20%) | $195,000.00 |
| Total depreciation for Year 1 | $1,315,452.70 |
Happy Learning!
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