Question

1. Diane purchased and placed in service a factory building on November 15, 2018, for $5,000,000. Determine the cost recovery deduction for 2018.

Answer 1

As per section 179 of the United States Internal Revenue Code, a taxpayer can deduct the cost of a new property from their gross income as an expense, ie, no need to capitalize the cost of the property and depreciated.

This deduction is meant to help small and medium-sized businesses to buy new equipment and thereby allows them to write off the entire purchase price of qualifying equipment.

The deduction limit for 2018 is $1,000,000.

Hence companies can deduct the full cost of qualifying equipment from their 2018 taxes, up to $1,000,000.

But the equipment purchased limit is 2.5 million (after that is reached, the deduction decreases on a dollar for dollar basis, before disappearing altogether once $3.5 million is spent).

Another condition is the equipment needed to be purchased and put into service between 1/1/2018 and midnight 12/31/2018.

In the given case, Diane purchased the building for $ 5,000,000 which exceed the limit. So the benefit is not available. However bonus depreciation of 100% is available.