Question

Karane Enterprise, a calendar year manufacturer based on college Station, Texas, began business in 2017. In the process of setting up the business, Karane has acquired various types of assets. Below is a list of assets acquired during 2017 :
Assets.                     Costs.   Date in service
Office furniture.   150,000.     2/3/2017
Machinery.           1,560,000.    7/22/2017
Used delivery trucks 40,000.    8/17/2017

During 2017, Karane was very successful (and had no 179 limatation) and decided to aquire more assets this next year to increase its production capacity. These are the assets acquired during 2018 :

Assets.                     Costs.       Date in service
Computers & infn    400,000.     3/31/2018
Luxury Auto.                80,000.     5/26/2018
Assembly equipment. 1,200,000. 8/15/2018
Storage building.             700,000   11/13/2018
Used 100% for business purposes.

Karene generated taxable income in 2018 of 1,732,500 for the purpose of computing the 179 expense.

(A) Compute the maximum 2017 depreciation deductions including 179 expenses (ignoring bonus depreciation).
(b) compute the maximum 2018 depreciation deduction including 179 expenses (ignoring bonus depreciation).
(c) compute the maximum 2018 depreciation deduction including 179 expenses, but now assume that Karene would like to take bonus depreciation.
(d) Now assumes that during 2018, Karane decides to buy a competitor assets for a purchase price of 1,350,000. Compute the maximum 2018 costs recovery includes 179 expenses and bonus depreciation. Karens purchase the following assets for the lump-sum purchase price :

Assets.                     Costs.       Date in service
Inventory.                 220,000.    9/15/2018
Office furniture.       230,000.     9/15/2018
Machinery.                 250,000.     9/15/2018
Patent.                         198,000.    9/15/2018
Building.                        430,000.    9/15/2018
Goodwill.                            2000.     9/15/2018
Land.                                  20,000.    9/15/2018

(e) complete part 1 of the forms 4562 part( B) (use the most current forms available).

Answer 1

Section 179 of the IRS enables taxpayers to make a deduction of the cost of the specific property as an expense after the property in service is placed. The expense deduction of section 179 property has been increased from $500,000 to $1 million The deduction is applied to tangible personal property including machinery and equipment which has been bought for business purposes. It enables businesses to write off the whole cost of purchasing a qualifying property for the existing tax year up to $1 million.

Note : MACRS Half Year Convention Tables and MACRS Mid Quarter Convention Tables For 1st,2nd,3rd and 4th quarters have been used to tabulate the results below.

The maximum depreciations deductions for 2017 and 2018 including Sec 179 expenses are as follows :

Description	Cost ($)	Sec 179 Expense	MACRS Basis	Current MACRS Depreciation	Total Depreciation Deduction
2017 assets
Office Furniture	150,000	0	150,000	36,735	36,735
Machinery	1,560,000	0	560,000	137,144	137,144
Used Delivery Truck	40,000	0	40,000	12,800	12,800
2018 Assets
Computers& Infn	400.000	0	400,000	80,000	80,000
Luxury Auto	80,000	0	80,000	10,000	10,000
Assembly Equipment	1,200.000	1,000,000	200,000	28,580	1,028,580
Storage Building	700,000	0	700,000	2,247	2,247
Totals	4,130,000	1,000,000	2,130,000	307,506	1,307,506