Question

Frank is the sole proprietor of a small business.  In 2019, the business income for purposes of computing the Section 179 deduction is $350,000.  During the year, the following assets were placed in service.  (Assume no bonus depreciation)

Asset # 1 – Machinery  - $1,790,000

Asset # 2 – Equipment - $365,000

Asset # 3 – Computer - $96,000

Asset # 4 – Equipment - $468,000

3a) Calculate the amount of the phase out limitation?

3b) What is the maximum amount of Section 179 depreciation Frank is eligible to take?

Answer 1

The total assets placed in service by Frank during 2019 is as follows:-

Asset	Amount
Asset #1 - Machinery	1,790,000
Asset #2 - Equipment	365,000
Asset #3 - Computer	96,000
Asset #4 - Equipment	468,000
Total Assets	2,719,000

Requirement 3a:-

Per IRS, the maximum Section 179 that Frank is eligible to take for the assets placed during the year is $1,020,000 . This maximum limit is reduced dollar by dollar (phased out) for assets placed in service in excess of $2,550,000.

Since Frank has placed assets worth $2,719,000 in service during the year, the amount phased out is:-

$2,719,000 - $2,550,000 = $169,000

$169,000 is phased out of the maximum $1,020,000 eligible deduction for Frank.

Requirement 3b:-

The maximum amount of Section 179 deduction is the lower of :-

i.) Remaining amount after Phase out for Frank - $851,000 (1,020,000 - 169,000)

or

ii.) Net Income of Frank - $350,000

Since the Net Income of frank is lower among the two, maximum Section 179 deduction for Frank is limited to $350,000