Question

For his business, McKenzie purchased qualifying equipment that cost $212,000 in 2018. The taxable income of the business for the year is $5,600 before consideration of any § 179 deduction.

How would your answer change if McKenzie decided to use additional first-year (bonus) depreciation on the equipment?
McKenzie's § 179 expense deduction is $ for 2018. His § 179 carryover to 2019 is $

Answer 1

.Section 179 permits to elect to write off up to $1000,000 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 $212,000 and used section 179 deductions. McKenzie’s taxable income was $5,600 before the use of the 179 deductions. The Section 179 expense of $212,000 is less than $2.5 million, the entire $212,000 is eligible for the deduction. The deduction is limited to the taxable income of the current year which is $5,600. The rest of the amount is carried forward and allowed as a deduction in future years. So McKenzie’s deduction on section 179 expense for 2018 is $5600

If Mckenzie decided to use additional first year( bonus) depretiation on the equipment than the whole amount after deduction i.e. $206400( i.e. $212000 - $5600) will be written off and allowed to be depreciated over the life of the equipment.