Question

On June 5, 2019, Javier Sanchez purchased and placed in service a new 7-year class asset costing $560,000 for use in his landscaping business, which he operates as a single member LLC (Sanchez Landscaping LLC). During 2019, his business generated a net income of $945,780 before any § 179 immediate expense election. Rather than using bonus depreciation, Javier would like to use § 179 to expense $200,000 of this asset and then use regular MACRS to cost recover the remaining cost. If required round your intermediate computations and final answers to the nearest dollar. Click here to access the depreciation table to use for this problem. a. Determine the cost recovery deductions (including first year additional depreciation) that Javier Sanchez can claim with respect to this asset in 2019 and 2020.

a. Total cost recovery deduction in 2019 = ? , 2020= ?

b. Complete Javier's Form 4562 (page 1) for 2019. Note: For 2019, the maximum § 179 is $1,020,000 and the threshold amount is $2,550,000. If an amount is zero, enter "0". Enter amounts as positive numbers. Form 4562 Department of the Treasury Internal Revenue Service (99) Depreciation and Amortization (Including Information on Listed Property) ▶ Attach to your tax return. ▶ Go to www.irs.gov/Form4562 for instructions and the latest information. OMB No. 1545-0172 2019 Attachment Sequence No. 179 Name(s) shown on return Javier Sanchez Business or activity to which this form relates Sanchez Landscaping, LLC Identifying number 123-45-6789 Part I Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I. 1 Maximum amount (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 fill in the blank 3 2 Total cost of section 179 property placed in service (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 fill in the blank 4 3 Threshold cost of section 179 property before reduction in limitation (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . 3 fill in the blank 5 4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 fill in the blank 6 5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. If married filing separately, see instructions 5 fill in the blank 7 6 (a) Description of property (b) Cost (business use only) (c) Elected cost Landscaping equipment fill in the blank 8 fill in the blank 9 7 Listed property. Enter the amount from line 29 . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 fill in the blank 10 9 Tentative deduction. Enter the smaller of line 5 or line 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 fill in the blank 11 10 Carryover of disallowed deduction from line 13 of your 2018 Form 4562 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 fill in the blank 12 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5 (see instructions) . . . . . . 11 fill in the blank 13 12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . 12 fill in the blank 14 13 Carryover of disallowed deduction to 2020. Add lines 9 and 10, less line 12. . . . . . ▶ 13 fill in the blank 15 Note: Don't use Part II or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don't include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 15 Property subject to section 168(f)(1) election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16 Other depreciation (including ACRS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Part III MACRS Depreciation (Don't include listed property. See instructions.) Section A 17 MACRS deductions for assets placed in service in tax years beginning before 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here ▶ ☐ Section B—Assets Placed in Service During 2019 Tax Year Using the General Depreciation System (a) Classification of property (b) Month and year placed in service (c) Basis for depreciation (business/investment use only—see instructions) (d) Recovery period (e) Convention (f) Method (g) Depreciation deduction 19a 3-year property b 5-year property c 7-year property fill in the blank 16 7 yrs. fill in the blank 19 d 10-year property e 15-year property f 20-year property g 25-year property 25 yrs. S/L h Residential rental 27.5 yrs. MM S/L property 27.5 yrs. MM S/L i Nonresidential real 39 yrs. MM S/L property MM S/L Section C—Assets Placed in Service During 2019 Tax Year Using the Alternative Depreciation System 20a Class life S/L b 12-year 12 yrs. S/L c 30-year 30 yrs. MM S/L d 40-year 40 yrs. MM S/L Part IV Summary (See instructions.) 21 Listed property. Enter amount from line 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21. Enter here and on the appropriate lines of your return. Partnerships and S corporations—see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 fill in the blank 20 23 For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 12906N Form 4562 (2019) Check My Work3 more Check My Work uses remaining

Answer 1

Date of Asset purchased and placed in service : June 5, 2019

Cost of Asset : $ 560,000

Below is computation for cost recovery deduction for year 2019 & 2020 for Sanchez Landscaping LLC

Total cost recovery deduction in 2019

Section 179 Expense (Elected) $ 200,000

Bonus Depreciation (not opted by Taxpayer) $ 0

MACRS Depreciation (2019) - as per MACRS Table $ 88,164

Total cost recovery deduction in 2019 $ 2,88,164

Total cost recovery deduction in 2020

Section 179 Expense (Elected) $ 0

MACRS Depreciation (2020)- as per MACRS Table $99,000 Total cost recovery deduction in 2020 $ $99,000

MACRS Depreciation Table

Total Cost of Asset $ 560,000

Section 179 Expense (Elected) $ (200,000)

Basis for MACRS $ 360,000

Year Rate Amount

2019 24.49% $ 88,164 [$ 360,000 * 24.29%]

2020 27.50% $ 99,000[$ 360,000*27.50%]

b) Form 4562 Information complete only to the extend information available in problem, Complete Form not filled

Part I Election To Expense Certain Property Under Section 179 [Form 4562] Year 2018

1 Maximum amount (see instructions) . . . . . . $ 1,020,000

2 Total cost of section 179 property placed in service $ 560,000

3 Threshold cost of section 179 property before reduction in limitation $ 2,550,000

4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0- $ 0

5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. $ 0

6 (a) Description of property : Landscaping equipment.

(b) Cost (business use only) $ 560,000

(c) Elected cost $ 200,000

7 Listed property. Enter the amount from line 29 (Information not available)

8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 $ 200,000

9 Tentative deduction. Enter the smaller of line 5 or line 8 $ 200,000

10 Carryover of disallowed deduction from line 13 of your 2019 Form 4562 (Information not available)

11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5

12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11