Question

Assume that ACW Corporation has 2018 taxable income of $1,040,000 for purposes of computing the §179 expense. The company acquired the following assets during 2018 (assume no bonus depreciation): (Use MACRS Table 1, Table 2, and Table 5).

Machinery	12-Sep	$	474,000
Computer equipment	10-Feb		74,000
Delivery truck	21-Aug		97,000
Qualified improvement property	2-Apr		1,384,000
Total		$	2,029,000

1. What is the maximum amount of §179 expense ACW may deduct for 2018?
2. What is the maximum total depreciation that ACW may deduct in 2018 on the assets it placed in service in 2018? (Round your intermediate computations to the nearest whole dollar amount.)

Answer 1

Answer :

a ) The maximum 179 expense ACW may deduct in 2018 is $ 1,000,000 .

Description	Amount ($)	Explanation
1) Qualified property placed in service in 2018	$2,029,000	Total of qualifying assets.
2) Threshold for 179 phase out	(2,500,000)	2018 amount
3) Phase out of maximum 179 expense	$ 0	(1) -(2) Permanently disallowed , not less than $ 0
4) Maximum 179 expense before phase out	$1,000,000	2018 amount
5) Phase out of maximum 179 expense	$ 0	From (3)
Maximum 179 expense after phase out	$1,000,000	(4) - (5)

b) The maximum Depreciation expense ACW may deduct in 2018 is $ 670,175.

Half year convention is used since there was no property placed in service during the fourth quarter.

Asset	Original Basis ($)	179 Expense	Remaining Basis	Rate	Depreciation expense ($)
Machinery ( 7year )	474,000	474,000	-	14.29%	-
Computer Equipment ( 5 year )	74,000	74,000	-	20.00%	-
Delivery Truck ( 5 year )	97,000	97,000	-	20.00%	-
Qualified Improvement property ( 15 year )	1,384,000		1,384,000	1.819%	25,175
179 expense					$ 645,000
Total Depreciation Expense					$670,175

* Under the 2015 PATH Act , Qualified Improvement Property is depreciated over 39 years. 179 expense cannot be setoff against QIP. Therefore the excess of 179 expense $ 355,000 can be carry forward to the next year.