Question

McKenzie purchased qualifying equipment for his business that cost $457,900 in 2019. The taxable income of the business for the year is $111,500 before consideration of any § 179 deductions.

If an amount is zero, enter "0".

a. Calculate McKenzie’s § 179 expense deduction for 2019 and any carryover to 2020.
§ 179 expense deduction for 2019: $ _________
§ 179 carryover to 2020: $ _________

b. How would your answer change if McKenzie decided to use additional first-year (bonus) depreciation on the equipment instead of using § 179 expensing? Hint: See Concept Summary 8.5.
§ 179 expense deduction for 2019: $ _________
§ 179 carryover to 2020: __________

Answer 1

a. Section 179 permits to elect to write off up to $1,000,000 of the cost of acquisition of tangibles to personal property during the first year. That amount cannot be capitalized and depreciated. There are some limitations of Section 179 which are as follows: First is if the value of assets increased $2.5 million, in that case, excess of $2.5 million is deducted from writing off the amount. Next is the amount cannot be written off if more than the taxable income is less than the written-off amount and if it is carried forward to the next year. McKenzie purchased assets for $457,900 and used section 179 deductions. It is required to compute McKenzie’s taxable income was $111,500 before the use of the 179 deductions. The Section 179 expense of $457,900 is less than $2.5 million, the entire $457,900 is eligible for the deduction. The deduction is limited to the taxable income of the current year which is $111,500. The rest of the amount of $346,400 is carried forward and allowed as a deduction in future years. So McKenzie’s deduction on Section 179 expense for 2019 is $111,500.

b.if McKenzie decided to use additional first-year (bonus) depreciation on the equipment instead of using § 179 expensing then

-Bonus depreciation doesn't have to be used for new purchases but must be "first use" by the business that buys it.
-Bonus depreciation increased to 100% for qualified purchases made after September 17, 2017, and remains at 100% until January 1, 2023.

§ 179 expense deduction for 2019: $0
§ 179 carryover to 2020: $457,900