Dain’s Diamond Bit Drilling purchased the following assets this year. Asset Purc
ID: 2446047 • Letter: D
Question
Dain’s Diamond Bit Drilling purchased the following assets this year. Asset Purchase Date Original Basis Drill bits (5-year) February 8 $ 110,000 Drill bits (5-year) July 2 111,250 Commercial building April 27 363,000 Assume its taxable income for the year was $70,000 before deducting any §179 expense (assume no bonus depreciation but assume that the 2014 §179 limits are extended to 2015). (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.) a. What is the maximum amount of §179 expense Dain may deduct for the year? b. What is Dain’s maximum depreciation expense for the year (including §179 expense)? c. If the February drill bits’ original basis was $2,376,500, what is the maximum amount of §179 expense for the year? Dain may deduct for the year?(Leave no answer blank. Enter zero if applicable.) d. If the February drill bits’ basis was $2,496,500, what is Dain’s maximum §179 expense for the year?(Leave no answer blank. Enter zero if applicable.)
Explanation / Answer
a)
Assume its taxable income for the year was $70,000 before deducting any §179 expense (assume no bonus depreciation but assume that the 2014 §179 limits are extended to 2015).
As per the US Tax Laws, a maximum amount of $ 25,000 can be claimed as Section 179 expense by Dain during the year, for the year 2015
b)
Depreciation Rate
Depreciation in $
Drill Bits
110000
20%
22000
Drill Bits
111250
20%
22250
Commercial Building
363000
1.82%
6602.97
50852.97
c)
If the Feb drill bits original basis was $ 2,376,500, the maximum amount of Section 179 expense would be
Total Cost of Assets
2850750
Phase out in 2015
200000
(i)
Maximum 2015 expense before phase-out
270000
(ii)
Lower of (i) and (ii)
200000
allowable as Section 179 deduction
d)
In this case, the amount would remain the same viz. $ 200,000.
Depreciation Rate
Depreciation in $
Drill Bits
110000
20%
22000
Drill Bits
111250
20%
22250
Commercial Building
363000
1.82%
6602.97
50852.97
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