Question

1. On June 30, 2017 Mike’s Mining purchased $1,200,000 of new mining equipment. Mike’s Mining wants to maximize its depreciation. This was the only asset purchased during the year. Ignoring any income limitations, what amount of depreciation can be claimed in 2017 related to the purchase of this equipment?

2. Beulah, a beauty consultant, purchased a new computer on March 1, 2017 for $1,500. Beulah uses the computer 80% for business purposes and 20% for personal purposes. Beulah has elected not to use bonus or Section 179 depreciation. This was her only asset purchase during the year. How much deprecation can she claim using MACRS accelerated depreciation?

Answer 1

The maximum amount you can elect to deduct for most section 179 property you placed in service in tax years beginning in 2017 is $510,000 and here the asset purchased is $ 1,200,000. So it doesnt Qualify for Sec 179 Depriciation.

the Mike's Mining wants to maximize its Depriciation. So it can use Macrs depriciation which will result in larger depriciation in earlier years. Or it can use Straight line method providing equal depricaition in all years

Mining Equipment comes under the 7 year classification of asset in MACRS.

Depriciation = $1,200,000* 14.286% =$ 171,429. ( Same both in case of Macrs and Straight line )

then, in Macrs

S .no	year	basis	percentage	depriciation	method
1	2017	$1,200,000	14.286	$171429	DB
2	2018	$1,200,000	24.490	$293878	DB
3	2019	$1,200,000	17.493	$209913	DB
4	2020	$1,200,000	12.495	$149938	DB
5	2021	$1,200,000	8.925	$107098	SL
6	2022	$1,200,000	8.925	$107098	SL
7	2023	$1,200,000	8.925	$107098	SL
8	2024	$1,200,000	8.925	$53549	SL

2. Since Beulah is not opting for Section 179 Depriciation instead of availing full depriciation in the year of purchase she will be eligible to take part of depriciation in current year and rest in succeding years.

she has purchased computer on March 1 which is covered under 5 year classification. the method i adopted is GDS using 200% DB. with half year convention.(it gives larger depriciation in earlier years.and Straight line gives equal depriciation in every year.

she uses computer 80% for business purpose which gives us the unadjusted basic value of $ 1500*80% = $ 1200

Depriciation = 1200* 20% = $ 240 for the current year

s.no	year	basis	percentage	depriciation	accumulated dep	ending book value	method
1	2017	$1200	20.00%	$240	$240	$960	DB
2	2018	$1200	32.00%	$384	$624	$576	DB
3	2019	$1200	19.20%	$230	$854	$346	DB
4	2020	$1200	11.52%	$138	$993	$207	SL
5	2021	$1200	11.52%	$138	$1131	$69	SL
6	2022	$1200	5.76%	$69	$1200	0

depriciation rate are from depriciation rate table A-1

Note that since the declining balance (DB) depreciation for year 2020 ($138) would be less than or equal to the straight line (SL) depreciation ($138), straight line depreciation is used for year 2020 as well as the remainder of the recovery period -- as indicated in the "M" (Method) column.