Question

Acorn Construction (calendar-year end C-corporation) has had rapid expansion during the last half of the current year due to the housing market's recovery. The company has $5,000,000 of taxable income before the cost recovery deduction and would like to maximize its cost recovery deduction for the current year. Acorn provided the following information: Assets Placed in Service New Equipment and Tools Used Light Duty Trucks Used Machinery Total August 20 January 17 February 6 Basis $1,750,000 1,500,000 525.000 $3,775,000 The used assets had been contributed to the business by its owner in a nontaxable transaction. What is Acorn's maximum cost recovery expense in the current year?

Answer 1

CALACULATION OF ACRON's MAXIMUM COST RECOVERY EXPENSE IN THE CURRENT YEAR :

Asset	Original Basis	Bonus Depreciation	Remaining Basis	MACRS Rate	Depreciation Deduction
New Equipment and tools	$1750000	$1750000	$0	14.29%	$0
Used Light duty trucks	$1500000	$0	$1500000	20%	$300000
Used Machinery	$525000	$0	$525000	14.29%	$75023
Bonus Depreciation					$1750000
Total					$2125023.

- The total cost recovery deduction is the total depreciation deduction i.e., $2125023.

- Acron construction company is eligible for 100% bonus depreciation on its newly purchased asset (new equipment and tools).

- the company is not eligible for 100% bonus depreciation on its existing assets as they have been already taken and used by the company

- And, Aircon company is not eligible for sec. 179 expense deduction as the newly purchased asset get into exist and the assets exceed the threshold limit of $2500000 by more than $1000000.