Question

On February 5, 2019, Javier Sanchez purchased and placed in service a new 7-year class asset costing $477,200 for use in his landscaping business, which he operates as a single member LLC (Sanchez Landscaping LLC).

Rather than using bonus depreciation, Javier would like to use § 179 to expense $200,000 of this asset and then use regular MACRS to cost recover the remaining cost. During 2018, his business generated a net income of $572,640 before any § 179 immediate expense election.

If required round your intermediate computations and final answers to the nearest dollar. Click here to access the depreciation table to use for this problem.

a. Determine the cost recovery deductions (including first year additional depreciation) that Javier Sanchez can claim with respect to this asset in 2019 and 2020.
Total cost recovery deduction in 2019: $
Total cost recovery deduction in 2020: $

b. Complete Javier's Form 4562 (page 1) for 2019.

Note: For 2019, the maximum § 179 is $1,020,000 and the threshold amount is $2,550,000. If an amount is zero, enter "0". Enter amounts as positive numbers.

Answer 1

Total cost recovery deduction in 2019

Section 179 Expense (Elected) $ 200,000

Bonus Depreciation (not opted by Taxpayer)   $ 0

MACRS Depreciation (2019) - as per MACRS Table $ 39,612

Total cost recovery deduction in 2019 $ 239,612

Total cost recovery deduction in 2020

Section 179 Expense (Elected) $ 0

MACRS Depreciation (2020)- as per MACRS Table $ 67,332

Total cost recovery deduction in 2020   $ 67,332

MACRS Depreciation Table

Total Cost of Asset	$ 477,200
Section 179 Expense (Elected)	$        (200,000)
Basis for MACRS	$           277,200

Year	Rate	Amount
2018	14.29%	$ 39,612	[$ 277,200 * 14.29%]
2019	24.49%	$ 67,332	[$ 277,200 * 24.29%]

b. Complete Javier's Form 4562 (page 1) for 2020.

Form 4562 Information complete only to the extend information available in problem, Complete Form not filled

Part I	Election To Expense Certain Property Under Section 179 [Form 4562]	Year 2019
1	Maximum amount (see instructions) . . . . . .	$     1,020,000
2	Total cost of section 179 property placed in service	$ 477,200
3	Threshold cost of section 179 property before reduction in limitation	$     2,550,000
4	Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0-	$                   0
5	Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-.	$                   0
6	(a) Description of property : Landscaping equipment.
	(b) Cost (business use only)	$ 477,200
	(c) Elected cost	$ 200,000
7	Listed property. Enter the amount from line 29 (Information not available)
8	Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7	$         200,000
9	Tentative deduction. Enter the smaller of line 5 or line 8	$         200,000
10	Carryover of disallowed deduction from line 13 of your 2017 Form 4562 (Information not available)
11	Business income limitation. Enter the smaller of business income (not less than zero) or line 5
12	Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11