Question

Calculate the total depreciation for these various assets - All assets are business use. Joe purchased a 5 year asset for $1,190,000 on 6/13/2020. Joe wants to take the maximum amount of Sec 179 depreciation as possible. Taxable income for 2020 was $1,125,000. Calculate the depreciation expense for 2020. Joe sold the asset in 2021. Additional first year depreciation was not taken in 2020. Calculate the depreciation for 2021. 2020: 2021:

Sarah purchased an apartment complex on 5/5/2020 for $1,100,000. Calculate the deprecation
for 2020. She disposed the apartment complex on 7/31/23. Calculate the deprecation for 2023.
2020:				2023:

Ralph Co had start up cost of $53,000 in 2020. Ralph Co started its business in March 2020.
Calculate total amortization expense for 2020. Ralph Co elects to take additional first year
amortization under IRC 195. Calculate the Amortization Exp for 2021.
2020:				First Year Amort

Steve purchased two assets in 2020. A 5 year asset for 70,000 on 10/30/2020 and a 7 year asset for
$100,000 on 2/9/2020. Steve does not want to take Section 179 Depreciation or additional first year
depreciation in 2020. Calculate the deprecation expense for 2020. Steve sells the 5 year asset on
8/17/2021. Calculate the total depreciation expense for both assets in 2021.
2020:				2021:

Cheryl purchased an office building on 11/1/2020 for $800,000. Calculate the depreciation for
2020. She disposed of the building on 4/1/2024. Calculate the depreciation for 2024.
2020:				2024:

Answer 1

Section 179 Deduction:

The maximum amount you can elect to deduct for most section 179 property you placed in service in tax years beginning in 2020 is $1,040,000, according to the Internal Revenue Service (IRS).

Equipment, vehicles, and/or software purchased under Section 179 must be used for business purposes more than 50% of the time to qualify for the deduction.

Accordingly, since the asset was put to use on 13 June 2020, it has been put to use effection for more than 50% almost 6.5 months out of a 12 month year, and hence will qualify for deduction of maximum limit - $1,040,000.

Bonus depreciation allows qualifying businesses that spend more than the Section 179 limit to depreciate up to 100% on the remaining purchase amount.

Hence, Joe would be eligible to claim Bonus depreciation of differential amount ( $1,190,000- $1,040,000) = $150,000

Further, the next part to the questions deals with what happens when is the asset is sold next year in a situation where additional (bonus) depreciation is not claimed.

In this situation the asset would have a Carrying Value of $150,000 in the books as Opening Balance in 2021. Based on the date of sale, proportionate depreciation should be charged based on method of depreciation adoped by Joe.

If he had chosen Straight Line method- the remaining value of $150,000 would be equally depreciated in the remaining period of 4 useful years.

Assuming the asset was sold on 31 December 2021, depreciation for the year would be =(150,000/4) = $37,500