Question

Assume that TDW Corporation (calendar-year-end) has 2020 taxable income of $654,000 for purposes of computing the §179 expense. The company acquired the following assets during 2020: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.)

	Placed in
Asset	Service		Basis
Machinery	September 12	$	2,270,500
Computer equipment	February 10		263,650
Furniture	April 2		880,850
Total		$	3,415,000

a. What is the maximum amount of §179 expense TDW may deduct for 2020?

Answer 1

Based on the information available in the question, we can answer as follows:-

Step 1:- Calculate the total amount of property placed in service during the year.

Asset	Placed in Service	Cost of the asset
Machinery	September 12	2,270,500
Computer Equipment	February 10	263,650
Furniture	April 2	880,850
Total		3,415,000

Step 2:- Calculate the phase out of the qualified Sectuion 179 expense.

The maximum amount that we can deduct under Section 179 for the year 2020 is $1,040,000. This amount is phased out for the total amount of assets placed in service exceeding $2,590,000.

Phase out = $3,415,000 - $2,590,000 = $925,000

Step 3:- Calculate the maximum Section 179 deduction

Based on the above calculation, we understand that $925,000 is phased out from the maximum possible deduction under Section 179.

Section 179 deduction = $1,040,000 - $925,000 = $115,000. Since $115,000 is lesser than the company's Net income for 2020 , the company will be allowed the full deduction of $115,000

Maximum Section 179 deduction for 2020 = $115,000

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