Question

McKenzie purchased qualifying equipment for his business that cost $212,000 in 2018. The taxable income of the business for the year is $5,600 before consideration of any § 179 deduction.
a. Calculate McKenzie s § 179 expense deduction for 2018 and any carryover to 2019.
b. How would your answer change if McKenzie decided to use additional first-year (bonus) depreciation on the equipment?

Answer 1

a. 

In 2018, · 179 permits the taxpayer to elect to deduct up to $1,000,000 of the acquisition cost of tangible personal property used in a trade or business.

Two additional limitations apply to the amount deductible under · 179. First, the ceiling amount on the deduction is reduced dollar for dollar when · 179 property placed in service during the taxable year exceeds a maximum amount ($2,500,000 in 2018). Second, the · 179 deduction cannot exceed the taxpayer’s trade or business taxable income, computed without regard to the · 179 amount.

· 179 deduction before adjustment .......................................................$212,000
Less: Dollar limitation reduction ($212,000 < $2,500,000) ..........................(–0–)
Remaining · 179 deduction .....................................................................$212,000
· 179 deduction allowed due to business income limitation .................$ 5,600
· 179 deduction carryforward ($212,000 − $5,600) ..............................$206,400

 

b. 

Additional first-year depreciation is not limited to business income. As a result, McKenzie could deduct the entire $212,000 using bonus depreciation. However, other limitations may apply (e.g., the excess business loss limitation; see text Section 7-5).

a.

· 179 deduction allowed due to business income limitation .................$ 5,600
· 179 deduction carryforward ($212,000 − $5,600) ..............................$206,400

 

b.

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