Question

Northern LLC only purchased one asset this year. In 2019, Northern LLC placed in service on September 6^th machinery and equipment (seven-year property) with a basis of $3,250,000. Assume that Northern has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignore any potential bonus expensing). (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

Answer 1

The facts presented in the question are as follows:-

Cost of the Machinery and equipment = $3,250,000

Per IRS, the maximum deduction allowed under Section 179 for 2019 is $1,020,000. However, this amount is reduced dollar by dollar if the cost of section 179 property placed in service during the tax year exceeds $2,550,000. Hence, the maximum deduction under Section 179 that can be availed by Northern LLC is :-

Step 1:- Calculate reduction that is phased out

$3,250,000 - $2,550,000 = $700,000 phased out.

Step 2:- Calculate permissable section 179 deduction

$1,020,000 - $700,000 = $320,000

Section 179 deduction = $320,000

The remaining basis of $2,930,000 would be subject to depreciation under the "MACRS Half Year Convention" because the property has not placed more than 40% of property during the last quarter of the year for it to qualify for the MACRS mid quarter convention

Hence, MACRS Depreciation for 2019 = $2,930,000 * 14.29% = $418,697

The company has excluded potential bonus expensing.

Hence, the maximum allowed depreciation expense for the year = $320,000 + $418,697 = $738,697

Maximum depreciation expense including Section 179 = $738,697