Question

QUESTIONS Dain's Diamond Bit Driling purchased the following assets this year. Assume its taxable income for the year was 563.000 before deducting any 5179 expense (assume no bonus depreciation) Asset Drill Bits (5 year) Drill Bits (5-year) Commercial Building Purchase Date January 25 July 25 April 22 Original Basis $90,000 95,000 220,000 What is the maximum amount of $179 expense Dain may deduct for the year QUESTIONS Assume that ACW Corporation has 2020 taxable income of 1.400.000 before the $179 expense, acquired the following assets during 2020 (assume no bonus depreciation) Asset Machinery Computer equipment Delivery truck Qualified leasehold improvements Total Placed in Service September 12 February 10 August 21 Basis $483 000 70.000 93.000 April 2 1.380,000 $2,026,000 What is the maximum amount of $179 expense ACW may deduct for 2020?

Answer 1

Answer

Section 179:

• Section 179 of the IRC allows businesses to take an immediate deduction for business expenses related to depreciable assets such as equipment, vehicles, and software.
• This allows businesses to lower their current-year tax liability rather than capitalizing an asset and depreciating it over time in future tax years.

• To qualify for a Section 179 deduction, your asset must be:

• Tangible. Physical property such as furniture, equipment, and most computer software qualify for Section 179. Intangible assets like patents or copyrights do not. Buildings and land also don’t qualify, although some equipment attached to the building does, including things like fire suppression systems, alarms, and air conditioning units.

• Purchased. Leased property doesn’t qualify. However, qualified leasehold improvement is eligible.

• Used more than 50% in your business. An asset that is primarily for personal use but occasionally used for the business isn’t eligible.

• Not acquired from a related party. This includes siblings, spouses, parents, grandparents, descendants and businesses, trusts, and charitable organizations with which you have a relationship.

• Section 179 rules require you to start using the asset in your business to take the deduction.

• Your Section 179 deduction is also limited to your business’ net income for the year—you can’t deduct more money than you made.

• Section 179 is limited to a maximum deduction of $1,040,000 and a value of property purchased to $2,590,000 for the year 2020.

Answer Q.8:

As per section 179 total deduction is $1,85,000($90,000+$95,000). Commercial building is not eligible for deduction.

Dian's Taxable income = $63,000

So, Dian can claim maximum deduction of $63,000 under section 179

Answer Q.9:

ACW corporation Taxable income = $14,00,000

Total deduction = $20,26,000

However. As per section 179 maximun deduction is $1,040,000

So, ACW corporation can claim maximun deduction of $1,040,000 under section 179.