Question

In April of 2019, Jack purchased and placed in service $70,000 of automobiles (5-year class life) for his business. In August of 2019, he purchased and placed in service $40,000 of trucks (5-year class life) for his business. In November of 2019, he purchased and placed in service $90,000 of furniture (7-year class life) for his business. These are the only assets placed in service during the year. His taxable income (before the 179 deduction) for 2019 is $50,000. Jack elects to take his full allowable Section 179 deduction but no additional first-year depreciation in 2019. What depreciation convention (half-year mid-quarter, mid-month) will he be required to use under MACRS? Which assets should he allocate his Section 179 deduction to in 2019 in order to minimize his 2019 tax liability? What is Jack's depreciation deduction for 2019?

Answer 1

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Answers are highlighted in yellow: Format and naming convention is not available, can be slighity different: Solution: Mid-Quarter As per IRS, if 40% of properties are placed in service during last quarter of year, then mid-quarter convension applies. Furniture (7 year class life) Because, applying section 179 deduction to longer life asset will result in a maximum deduction. | Assets Amount 179 Ded. Balance Furniture 90000 50000 40000 Automobile 70000 70000 Truck 40000 40000 179 Deduction Depreciation Deduction Life 7 5 5 Rate Depreciation 3.57% $ 1,428 25.00% $ 17,500 15.00% $ 6,000 50000 $ 74,928 c)