Question

AMP Corporation (calendar-year-end) has 2020 taxable income of $1,900,000 for purposes of computing the §179 expense. During 2020, AMP acquired the following assets:

	Placed in
Asset	Service		Basis
Machinery	September 12	$	1,320,000
Computer equipment	February 10		380,000
Office building	April 2		495,000
Total		$	2,195,000

1.What is the maximum amount of §179 expense AMP may deduct for 2020?

2.What is the maximum total depreciation, including §179 expense, that AMP may deduct in 2020 on the assets it placed in service in 2020, assuming no bonus depreciation?

Answer 1

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

Requirement 1:-

The maximum amount of Section 179 expense is calculated as follows:-

Step 1:- Calculate the total amount of qualified assets placed in service.

Assets	Amount
Machinery	1,320,000
Computer Equipment	380,000
Office Building	495,000
Total	2,195,000

The maximum allowed deduction under Section 179 is $1,040,000 . However, this deduction is phased out for assets placed in service exceeding $2,590,000.

Since the assets placed in service is lesser than the threshold of $2,590,000, the AMP Corporation is eligible for a full deduction of $1,040,000.

Further since the $1,040,000 is lesser than the company's net income, maximum amount of Section 179 expense AMP may deduct for 2020 is $1,040,000.

Requirement 2:-

The total amount of depreciation that AMP may deduct is calculated as follows:-

Asset	Original cost	Date placed in service	Section 179	Depreciable base	MACRS Asset Life(yrs)	MACRS Depreciation rate	Portion of Year	MACRS cost recovery
Machinery	1,320,000	September 12	1,040,000	280,000	7	14.29%	100%	148,616
Computer Equipment	380,000	February 10			5	20.00%	100%	76,000.00
Office Building	495,000	April 2			39.5	1.82%	100%	9,004.05
							Total	85,004.05

We use the Half Year Convention in calculating the depreciation expense as the company has not placed more than 40% of the assets during the last quarter of the year.

Based on the above calculation , the total depreciation that can be deducted during the year is $1,040,000 + $85,0004 = $1,125,004

The Total depreciation expense including Section 179 is $1,125,004

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