In 2019, McKenzie purchased qualifying equipment for his business that cost $212,000. The taxable income of the business for the year is $5,600 before consideration of any Section 179 deduction.

a. Calculate McKenzie’s Section 179 expense deduction for 2019 and any carryover to 2020.

b. How would your answer change if McKenzie decided to use additional first-year (bonus) depreciation on the equipment instead of using Section 179 expensing?

Question

26-10-2020
Business

contestada

In 2019, McKenzie purchased qualifying equipment for his business that cost $212,000. The taxable income of the business for the year is $5,600 before consideration of any Section 179 deduction.

a. Calculate McKenzie’s Section 179 expense deduction for 2019 and any carryover to 2020.

b. How would your answer change if McKenzie decided to use additional first-year (bonus) depreciation on the equipment instead of using Section 179 expensing?

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Answer:

A) The cost reduction for 2019 is $5,600. His accumulation to 2020 from Sec 179 is $206,400.

B) The allowance for spending is $0 for 2019. His accumulation to 2020 with Sec 179 is $0.0.

Explanation:

1) As per sections 179, a total of $212,000 is available for deduction, but the payment is related to taxable investment income as a restriction. Company revenue here is $5,600. Exemption is then decreased to $5,600 and holdover to nest year without $206,400 is the residual expense.

2) When we seek extra first-year expense, regardless of taxable business profits, we will claim the entire equipment costs as a deductible. So, Section 179 is going to be Zero and there's no reason to roll on to next term because in the first last year we were claiming maximum costs.