Question

A company has purchased $2,240,000 in Section 179-qualifying property during the year. In addition to using the Section 179 expense deduction, it wishes to use 50% bonus depreciation. Being in the offshore oil and gas business, all such assets are MACRS 5-year property. What will be the tax savings in year 1 as compared to simple MACRS depreciation without Section 179 and 50% bonus depreciation?

$294,000 

$324,000

$272,160

$174,000

Answer 1

*Section 179 has been revised through the years. What I'll be calculating is of the year 2020, the deduction is different for past years. If you need the deduction in a particular year use that year's depreciation which can be found on the internet. Just follow the steps I followed.

All businesses that purchase, finance, and/or lease new or used business equipment during the tax year 2020 should qualify for the Section 179 Deduction (assuming they spend less than $3,500,000). Congress has stopped the Section 179 roller coaster of the past few years and has made the Tax Deduction limit permanent. The limit is $1,000,000 for 2020 and beyond.

As of 2020, maximum depreciatoion = $1,000,000 (This has changed throughout the years, use the value of depreciation in that year you are choosing)

Tax basis recovered = 2,240,000 - 1,000,000 = $1,240,000

Bonus depreciation = 1,240,000 x 50% = $620,000

MACRS 5 = $2,240,000 x 1/5 (Since end of first year and is for a 5 year property so 1/5)

= $448,000

How much more will be the tax savings with section 179 and bonus depreciation as compared to MACRS = 620,000 - 448,000 = $172,000