Question

Hansen Computer Corp. acquires $2,150,000 in new 7-year class assets (all tangible personal property) in February 2020. The company elects to take all available Sec. 179 expense and bonus first-year depreciation. Assume Hansen uses a calendar year and that Sec. 179 expense will not be limited by taxable income in 2020. What cost recovery deduction can Hansen take in 2020?

Answer 1

1. Section 179 allows assesses to take deduction on depreciable asset completely in the first year of purchase itself. Normally the assesses is allowed to take deduction over the life of the asset.

2. Sec 179 is mainly aimed for small business who can claim the deduction in the first year itself which help them to reduce the tax liability and pay lower tax.

3. First year itself the assesses can take deduction on the entire vale the asset cannot be capitalized in the books.

4. Equipment covered under Sec 179 can also claim bonus depreciation which in turn reduces the tax liability.

5. Sec 179 keeps a limit on the amount spend and the amount of deduction

                Amount Spend: $2,500,000 for the year 2020.

                Deduction         : $1,000,000 for the year 2020.

Tax Deduction and Cost Recovery

cost of Equipment	2,150,000
Tax Bracket Assumed	0.35
Sec 179 deduction	1,000,000
Bonus Depreciation Deduction (100% in 2020)	1,150,000
Total Deduction	2,150,000
Cost Recovery Savings (2,150,000*.35)	752500
Cost of Equipment after Savings	1,397,500