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Betsy acquired a new network system on June 5, 2018 (5-year class property), for $61,000. She...

Betsy acquired a new network system on June 5, 2018 (5-year class property), for $61,000. She expects taxable income from the business will always be about $175,000 without regard to the §179 election. Betsy will elect §179 expensing. She also acquired 7-year property in July 2018 for $350,000. Determine Betsy’s maximum cost recovery deduction with respect to her purchases in 2018

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Answer :-

Computation of Betsy's maximum cost recovery deduction with respect to her purchase in 2018 :-

Under section 179 the business can deduct up to $1,000,000 to income limitation and 100% bonus depreciation is also allowed in 2018.

Particular Amount in $
7 year Property
Deduction as per section 179 175,000
Add -

Bonus Depreciation [100% of ($350,000 - $175,000)]

 175,000
MACRS (14.29% of 175,000) 25,007.5
5 Year Property
Bonus Depreciation (100 % of $61,000) 61,000
MARCs ( 20% of 61000) 12,200
Total cost recovery 448,207.5

MACRS rate is taken from MACRS table ie. In first year, for 7 year property is 14.29% and for 5 year property is 20% .

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