Question

Chaz Corporation has taxable income in 2019 of $406,000 for purposes of computing the §179 expense and acquired the following assets during the year:

	Placed in
Asset	Service		Basis
Office furniture	September 12	$	781,000
Computer equipment	February 10		916,000
Delivery truck	August 21		58,000
Qualified improvement property	September 30		1,517,000
Total		$	3,272,000

What is the maximum total depreciation deduction that Chaz may deduct in 2019? (Use MACRS Table 1, Table 2, Table 3, Table 4and Table 5.) (Round your answer to the nearest whole dollar amount.)

Answer 1

The maximum depreciation expense is determined as follows:

Description	Amount	Explanation
(1) Property placed in service	$3,272,000	Total of qualifying assets
(2) Threshold for Section 179 phase out	($2,550,000)	2019 amount section 179 (b) (2)
(3) Phase out of maximum 179 expense	$722,000	(1) - (2) permanently disallowed
(4) Maximum 179 expense before phase out	$1,020,000	2019 amount section 179 (b) (1)
(5) Phase out of maximum 179 expense	$722,000	from (3)
Maximum 179 expense after phase out	$298,000	(4) - (5), not limited by taxable income

Chaz will receive the most benefit by applying the Section 179 amount to the qualified improvement property. The remaining basis is recovered through MACRS. The furniture, computers and delivery truck are recovered using bonus depreciation. The maximum depreciation is calculated as follows:

Asset	Original basis	Section 179 expense	Remaining basis	Bonus depreciation	Remaining basis	Rate	Depreciation deduction
Furniture(7year)	$781,000		$781,000	$781,000	$0	14.29%	$0
Computers (5 year)	$916,000		$916,000	$916,000	$0	20%	$0
Delivery truck (5 year)	$58,000		$58,000	$58,000	$0	20%	$0
Qualified improvement property (39 year)	$1,517,000	$298,000	$1,219,000	N/A	$1,219,000	0.749%	$9,130
Section 179 expense							$298,000
Bonus depreciation				$1,755,000			$1,755,000
Total Depreciation Deduction							$2,062,130