Question

Required information Problem 2-62 (LO 2-2, LO 2-3) [The following information applies to the questions displayed below.] Woolard Supplies (a sole proprietorship) has taxable income in 2019 of $240,000 before any depreciation deductions ($179, bonus, or MACRS) and placed some office furniture into service during the year. The furniture does not qualify for bonus depreciation. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) Asset Office furniture (used) Placed In Service March 20 Basis $1,200,000

Answer 1

(a)

Rate of depreciation applicable for seven year asset under half year convention = 14.29%

Total depreciation = section 179 expense + regular depreciation on balance basis

= $50,000 + ($1,200,000 - $50,000) X 14.29% = $214,355

(b)

Maximum section 179 election available is $1,000,000. But, deduction is limited to taxable income before section 179 deduction.

Regular depreciation applicable after 179 election = (Basis of asset - section 179 election) X 14.29% = ($1,200,000 - $1,000,000) X 14.29% = $28,580

Taxable income before section 179 deduction = $240,000 - $28,580 = $211,420.

Total depreciation deduction = $28,580 + $211,420 = $240,000

Section 179 carry-forward = 179 election - 179 deduction = $1,000,000 - $211,420 = $788,580

(c)

Maximum 179 election amount = Taxable income before 179 deduction

179 election = Taxable income before depreciation - regular depreciation

179 election = $240,000 - ($1,200,000 - 179 election) X 14.29% = $79,944

Section 179 election should be $79,944.