Question

Jonathan operates a business as a sole proprietor. His business is a lawn service and landscaping business. In July 2018, Jonathan purchased two new lawn mowers at a cost of $6,000 each. He also purchased a new warehouse to store all of the equipment in. The warehouse cost $200,000 and he purchased it in August 2018

In 2020, Jonathan had the following items of income and deduction:

$70,000 of income form lawn service

$20,000 in expenses related to his business

Sale of the warehouse for $210,000

Sale of one mower (purchased in 2018) for $4,000

Please calculate Jonathan's depreciation deductions for 2020 (if any), ignoring bonus depreciation and Section 179. Also, please calculate Jonathan's taxable income and any special issues relating to how the income will be taxed.

Answer 1

a). Depreciation Calculation in 2020:

Tax depreciation rates are:

As per the income tax act, when a fixed asset is sold during the year, half depreciation is to be charged on the asset if the asset was in use during the year for less than or equal to 180 days during the year. In case the asset was already used for more than 180 days in the year before sale, the business can claim 100% deduction with respect to the same asset.

I assume that the asset was sold after 180 days in the current year. Hence, 100% of total depreciation could be

Depreciation on 2 loan movers of cost $ 6,000 each = (6,000*2) 10% = $1,200  

Depreciation on warehouse of cost $ 2,00,000 = 2,00,000* 2% = $4,000

Therefore, total depreciation deduction will be $1200 + $4000 = $5,200.