Acorn Construction (calendar-year end C-corporation) has had rapid expansion dur

Question

Acorn Construction (calendar-year end C-corporation) has had rapid expansion during the last half of the current year due to the housing market’s recovery. The company has $5,000,000 of taxable income before the cost recovery deduction and would like to maximize its cost recovery deduction for the current year. Acorn provided the following information: Assets Placed in Service Basis New Equipment and Tools August 20 $1,750,000 Used Light Duty Trucks January 17 1,500,000 Used Machinery February 6 525,000 Total $3,775,000 The used assets had been contributed to the business by its owner in a nontaxable transaction. What is Acorn’s maximum cost recovery expense in the current year?

Explanation / Answer

According to Section 179 of IRS, it provide deduction for capital asset purchased by small and Mid Size Firm from their Income in the First Year of Purchase Itself. The Condition to claim the decduction is that the Total Investment in Assets in the Financial Year should not increase by more than 3.5 Million, because the deduction is basically for small and Mid Size Firms and also the maximum Deduction which is allowable is 1 Million.

In the case of Acorn Construction which adopts calender year, the investment in calender year is 1.75 Million which in Under the Eligible Investment limit, so Acorn will be allowed a deduction of 1 Million from its taxable income of 5 Millions.

and For the Next Year the Total Invetsment is 5.275 Million which is above the eligibility Limit, so no deduction will be allowed in that case in next year

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