Olga is the proprietor of a small business. In 2019, the business's income, before consideration of...

Olga is the proprietor of a small business. In 2019, the business's income, before consideration of any cost recovery or § 179 deduction, is $250,000.

Olga spends $620,000 on new 7-year class assets and elects to take the § 179 deduction on them. She does not claim any available additional first-year depreciation. Olga's cost recovery deduction for 2019, except for the cost recovery with respect to the new 7-year assets, is $95,000.

a. What is the tentative amount of Olga's overall § 179 deduction for the seven-year class assets before any income limitation?

b. What is the total amount of Olga's § 179 deduction for the seven-year class assets after any income limitation?

c. What is Olga's total cost recovery depreciation deduction (including any § 179 deduction)?

d. What is the amount of any § 179 carryforward?

Expert Solution

Solution-

The deduction limit for 2019 has been raised to a full one million dollars ($1,000,000) This is a substantial deduction, and means businesses can deduct the full cost of equipment from their 2019 taxes, up to $1,000,000 with a threshold of $2,500,000. And taxpayer cannot create the taxable loss with this deduction, in other words can deduct the 179 expense upto the taxable income remaining will carry forward to future years indefinitely.

a- The cost of the asset is $ $620,000 and it is the less than threshold hence, the 179 deduction before the limitation is $620,000 for tax year 2019.

b. Olga's taxable income before income limitation is $250,000, As mentioned above taxpayer cannot create the taxable loss with the deduction hence, section 179 deduction for tax year 2019 is $250,000.

c. The remaining amount of $370,000 ($620,000 - $250,000) will be carry forwarded to future years indefinitely.

ekkarill92 answered 1 year ago

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