Question

I have A B and C answered I only need the answer to D and E. I have included the correct answers for A B and C

Problem 8-41 (LO. 2, 3, 9)

Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $400,000 on May 20, 2016. Lori expects the taxable income derived from her business (without regard to the amount expensed under § 179) to be about $800,000. Lori wants to elect immediate § 179 expensing, but she doesn't know which asset she should expense under § 179. She does not claim any available additional first-year depreciation.

Click here to access the depreciation tables in the textbook.

a. Determine Lori's total deduction if the § 179 expense is first taken with respect to the 5-year class asset.

5-year class property Immediate expense deduction under § 179 $200,000 Regular MACRS $0 7-year class property Immediate expense deduction under § 179 $300,000 Regular MACRS $14,290 Total deduction $514,290

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b. Determine Lori's total deduction if the § 179 expense is first taken with respect to the 7-year class asset.

7-year class property Immediate expense deduction under § 179 $400,000 Regular MACRS $0 5-year class property Immediate expense deduction under § 179 $100,000 Regular MACRS $20,000 Total deduction $520,000

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c. If § 179 expense is first allocated to the seven-year class property, the deduction for the year would be $5710 larger.

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For parts d. and e.
Assume a 6% discount rate The present value factors for a 6% discount rate are as follows: Year 1: 1.000, Year 2: 0.9434; Year 3: 0.8900, Year 4: 0.8396, year 5: 0.7921, Year 6: 0.7473, Year 7: 0.7050, Year 8: 0.6651.

d. Assume that Lori is in the 25% marginal tax bracket and that she uses § 179 on the 7-year asset.

The present value of the tax savings from the depreciation deductions for both assets $.

e. Assume that Lori is in the 25% marginal tax bracket and that Lori decides not to use § 179 on either asset.

The present value of the tax savings generated by not using the § 179 deduction on the 7-year asset $.

Answer 1