Question

For this exercise, assume that NO additional first-year depreciation is taken. Roger started a new business in 2019 and purchases 3 year class property on February 14, 2019 in the amount of $120,000. On July 15, 2019, Roger purchases five year class property in the amount of $185,000. On December 15, 2019, Roger purchases $2,450,000 of 7 year class property. Assume Roger has $5,000,000 of net business income before consideration of any $179 deduction. Also assume that Roger does not elect straight-line depreciation. A. Assume Roger does not elect $179 treatment. Calculate Roger's cost recovery for 2019. B. Assume Roger DOES elect $179 treatment. Calculate Roger's cost recovery for 2019. C. Assuming a marginal tax rate of 37%, determine the tax benefit from electing $179 D. Read the actual IRC section 179. Print ONLY the small part that discusses estates and trusts. Does $179 apply to estates and trusts?

Answer 1

A.
If the section 179 deduction is not taken,MARCS depreciation shall be considered.Since,the
assets can be classified as non residential real property, we would use the mid-month MARCS
convention
Asset Class	Date of Purchase	Depreciation period	MACRS Dep Rate	Asset Value	Depreciation 2019
3 year asset class	Feb 14,2019	10.50 months	33.33%	$120,000	$34,997
5 year asset class	July 15.2019	5.50 months	20.00%	$185,000	$16,958
7 year asset class	Dec 15,2019	0.50 months	14.29%	$2,450,000	$14,588
Cost recovery for 2019 if Section 179 is not chosen	$66,543
B.
Under section 179,Roger can claim 100% depreciation on the assets purchased during the year
subject to the overall limit of $ 1,040,000
Asset Class	Asset Value	Depreciation 2019
3 year asset class	$120,000	$120,000
5 year asset class	$185,000	$185,000
7 year asset class	$2,450,000	$2,450,000
Total	$2,755,000	$2,755,000
Limitation on the total depreciation that can be claimed under sec.179					$1,040,000
Value of Property placed in 2019	$2,755,000
Limit on Value of Property	$2,500,000
Excess over limit	$255,000
Maximum Depreciation claimed under section 179	$1,040,000
Less: Excess over limit	$255,000
Cost Recovery under Section 179	$785,000
C.
	Normal Depreciation	Depreciation Section 179
Net business income before Depreciation	$5,000,000	$5,000,000
Depreciation - Sec 179		$785,000
Depreciation - Normal	$66,543
Net business income after Depreciation	$4,933,457	$4,215,000
Tax @ 37%	$1,825,379	$1,559,550
Tax if Section 179 is not elected	$1,825,379
Tax if Section 179 is elected	$1,559,550
Tax Savings if Section 179 is elected	$265,829
D.
Under Section 179(d)(4), the option to claim 100% of the cost of asset as expense under
Section 179 is not available to Estates and Trusts.
The deduction under 179 for depreciable assets placed in service is passed by the business
through its partners or shareholders.This benefit is denied to estates ans trusts( other than the
grantor trusts).