Question

Dain's Diamond Bit Drilling purchased the following assets this year:

Asset	Purchase Date	Original Basis
Drill bits (5-year)	February 23	$95,000
Drill bits (5-year)	July 20	99,000
Commercial building	June 20	315,000

Assume its taxable income for the year was $59,500 before deducting any 179 expense (assume no bonus depreciation but assume that the 2014 179 limits are extended to 2015).

Required:

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

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

c. If the February drill bits' original basis was $2,382,500, what is Dain's maximum 179 expense for the year?

d. If the February drill bits' basis was $2,502,500, what is Dain's maximum 179 expense for the year?

Answer 1

a.

Description	Amount	Explanation
(1) Total cost of property	194000	Total of qualifying assets
(2) Threshold for §179 phase-out	-2000000	2014 amount §179
(3) Phase-out of maximum §179 expense	0	(1) – (2) (permanently disallowed)
(4) Maximum 179 expense before phase-out	500000	2014 amount §179
(5) Phase-out of maximum §179 expense	0	From (3)
(6) Maximum §179 expense after phase-out	500000	(4) – (5)
(7) Taxable income before §179 deduction		59500
§179 Expense after taxable income limitation		59500	Lesser of (6) and (7)

b.

Asset	Cost	179 Deduction	Balance	Rate	Depreciation
Drill bits (5-year)	95000		95000	20%	19000
Drill bits (5-year)	99000	59500	39500	20%	7900
Commercial building	315000		315000	1.391%	4381.65
179 Expense					59500
Total Maximum Depreciation					90781.65

Note:- If 50%179 deduction is taken then Total maximum Depreciation will be = 19000 + 13850 + 4381.65 + 29750 = $66,981.65

c.

Description	Amount	Explanation
(1) Total cost of property (2,382,500+99000)	2481500	Total of qualifying assets
(2) Threshold for §179 phase-out	-2000000	2014 amount §179
(3) Phase-out of maximum §179 expense	481500	(1) – (2) (permanently disallowed)
(4) Maximum 179 expense before phase-out	500000	2014 amount §179
(5) Phase-out of maximum §179 expense	481500	From (3)
(6) Maximum §179 expense after phase-out	18500	(4) – (5)
(7) Taxable income before §179 deduction		59500
§179 Expense after taxable income limitation		18500	Lesser of (6) and (7)

d.

Description	Amount	Explanation
(1) Total cost of property (2,502,500+99000)	2601500	Total of qualifying assets
(2) Threshold for §179 phase-out	-2000000	2014 amount §179
(3) Phase-out of maximum §179 expense	601500	(1) – (2) (permanently disallowed)
(4) Maximum 179 expense before phase-out	500000	2014 amount §179
(5) Phase-out of maximum §179 expense	601500	From (3)
(6) Maximum §179 expense after phase-out	0	(4) – (5)
(7) Taxable income before §179 deduction		59500
§179 Expense after taxable income limitation		0	Lesser of (6) and (7)

Kindly give me a ?.It helps me. Thanks!!