Question

.   A taxpayer purchased and placed in service during the year a $100,000 piece of equipment. The equipment is 7-year property. The first-year depreciation for 7-year property is 14.29%. There is an allowable Section 179 limit in the current year of $25,000. What amount is the maximum allowable depreciation?

Answer 1

Maximum allowable depreciation          = $ 35,718

A taxpayer who elects to expense under Section 179 must reduce the depreciable basis of the Section 179 property by the amount of the Section 179 expense deduction.

The maximum allowable depreciation is calculated (rounded) as follows:

Basis of property                                          $ 1,00,000

Less: Section 179 expense $ 25,000

Adjusted basis                                              $ 75,000

1st-year MACRS rate × 14.29%

1st-year depreciation                                  $ 10,718

Section 179 expense $ 25,000

Maximum allowable depreciation $ 35,718