Question

Dain’s Diamond Bit Drilling purchased the following assets this year.

	Purchase	Original
Asset	Date	Basis
Drill bits (5-year)	Jan-29	$	92,000
Drill bits (5-year)	Aug-11		103,750
Commercial building	Jun-11		289,000

Assume its taxable income for the year was $75,500 for purposes of computing the §179 expense (assume no bonus depreciation). (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.)

a. What is the maximum amount of §179 expense Dain's may deduct for the year?

b. What is Dain’s maximum depreciation deduction for the year (including §179 expense)?

c. If the January drill bits’ original basis was $2,520,000, what is the maximum amount of §179 expense Dain's may deduct for the year?

d. If the January drill bits’ original basis was $17,690,000, what is the maximum amount of §179 expense Dain's may deduct for the year?

Answer 1

a

Maximum 179 expense is limited to taxable income that is 75,500.

Answer is:

75,500

b

Total depreciation expense is:

	(a)	(b)	(c) = (a) - (b)	(d)	(e) = (c) - (d)
Property	Cost of asset	Section 179 election	Balance basis	Bonus depreciation	MACRS Basis
Drill bits	$         92,000	$         92,000	$                 -	$                 -	$              -
Drill bits	$      1,03,750	$      1,03,750	$                 -	$                 -	$              -
Building	$      2,89,000	$                 -	$      2,89,000	$                 -	$    2,89,000
-	$                 -	$                 -	$                 -	$                 -	$              -
Total	$      4,84,750	$      1,95,750	$      2,89,000	$                 -	$    2,89,000
	(a)		(b)	(a) X (b)
Property	MACRS Basis	Recovery period	Depreciation Rate	MACRS depreciation
Drill bits	$                 -	5 year	35.00%	$                 -
Drill bits	$                 -	5 year	15.00%	$                 -
Building	$      2,89,000	39 years	1.391%	$      4,019.99
Cost recovery				$      4,019.99
Asset	Section 179 deduction	Bonus depreciation	MACRS depreciation	Total depreciation
Drill bits	$    92,000.00	$                 -	$                 -	$    92,000.00
Drill bits	$ 1,03,750.00	$                 -	$                 -	$ 1,03,750.00
Building	$                 -	$                 -	$      4,019.99	$      4,019.99
Total depreciation	$ 1,95,750.00	$                 -	$      4,019.99	$ 1,99,769.99
Nature of depreciation	Amount
Section 179 expense	$    75,500.00
Bonus depreciation	$                 -
MACRS depreciation	$      4,019.99
Total depreciation	$    79,519.99

Answer is:

79,520

c

Maximum 179 expense is limited to taxable income that is 75,500.

Answer is:

75,500

d

Asset cost is above threshold.

Section 179 election and deduciton is $0