Question

Chaz Corporation has taxable income in 2019 of $360,000 for purposes of computing the §179 expense and acquired the following assets during the year:

	Placed in
Asset	Service		Basis
Office furniture	September 12	$	711,000
Computer equipment	February 10		930,000
Delivery truck	August 21		65,000
Qualified improvement property	September 30		1,531,000
Total		$	3,237,000

What is the maximum total depreciation deduction that Chaz may deduct in 2019?

Answer 1

According to Section 179, a business can deduct the full amount of qualified assets purchased and put to use in the year with the maximum limit of $1,000,000 and ' Total assets purchased ' threshold of $2,500,000.

So, First we have to ensure that the assets purchased are qualified for deduction and in this question all assets given are qualified.

Secondly we have to check the dates to ensure that the assets are purchased and put to use within 31st december of the year. Again here all the assets are placed in service within the year.

Next step, We have to check the total amount of qualified assets purchased and it should be within $2,500,000. But here CHAZ incorporation has exceeded this limit.

NOTE: Sec 179 is mainly to help small and medium size business to thrive in the competitive environment. so if we the company make purchases within threshold of $2,500,000 then such concerns can avail full deduction of $1,000,000. once a company exceeds this threshold limit and the amount of deduction available is reduced on Dollar to dollar basis. (i.e) for every dollar spent over $2,500,000 the available deduction is reduced by $1. Thus if a company spends $3,500,000 or more on purchases of assets then they will not be able to avail this deduction.

Calculation of Excess amount over Threshold limit of Total assets purchased:

S.no	Particulars	Amount ($)
1.	Total amount of assets Purchased by CHAZ corporation	3,237,000
2.	Threshold limit of Total assets purchased	2,500,000
3.	Excess amount over Threshold limit	737,000

As calculated Chaz corporation has exceeded threshold limit by $737,000. So the Maximum deduction available will be reduced by $737,000.

Calculation of Maximum deduction available under sec179:

S.no	Particulars	Amount ($)
1.	Deduction available under Sec.179	1,000,000
2.	Excess amount spent over threshold limit (from table 1)	737,000
3.	Maximum deduction available under sec179	263,000

So, the Maximum Deduction available for CHAZ corporation under sec.179 is $263,000.

Chaz corporation could not use the full deduction under sec179 but fortunately under TAX cuts and JOBS act Bonus depreciation can be availed upto 100% for qualified purchase of assets made between 27 september 2017 to 1 Jan 2023. so Lets now calculate the bonus depreciation available for CHAZ corporation.

Calculation of Bonus Depreciation available under TAX cuts and JOBS act:

S.no	Particulars	Amount ($)
1.	Bonus Depreciation available ( 100% of Purchase amount)	3,237,000
2.	Deduction availed under sec.179	263,000
	Bonus depreciation	2,974,000

As we have already availed deduction of $263,000 under section 179 we have deducted that amouont from deduction available under bonus depreciation.

So, Total Depreciation Deduction Available for CHAZ corporation is $3,237,000 ( $263,000 under section 179 + $2,974,000 under Bonus Depreciation )