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 record income and would like to maximize its cost recovery deduction for the current year. (Use MACRS Table 2,)

What is Acorn’s maximum cost recovery deduction in the current year assuming that bonus depreciation and 2014 §179 limits are extended to 2015?

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 record income and would like to maximize its cost recovery deduction for the current year. (Use MACRS Table 2,)

Explanation / Answer

Depreciation And Cost-Recovery Concepts - Section 179 Deduction

Section 179 Deduction
The purpose of the Section 179 deduction is to stimulate the economy by motivating small businesses to move in a positive direction. Section 179 allows a business to deduct the full purchase price of qualifying equipment up to $500,000 in the first year. (Figure was $250,000, but it was recently increased to $500,000 by the Tax Relief Act of 2010 and The Jobs Act of 2010).

Qualifying Property is categorized as tangible personal property purchased for use in the active conduct of a trade or business for the purpose of making a profit. The amount of the deduction cannot exceed taxable income for the year.

Equipment Limits:

PHASE OUT EXAMPLE:
Suppose that $2.2 million of equipment is purchased in 2011. The business' $500,000 deduction is reduced by $200,000 down to $300,000 (dollar-for-dollar on any amount over $2 million). Therefore, it is tactical business purchase planning to try to stay under the $2 million purchase amount to be able to fully utilize the $500,000 deduction.

Vehicle Qualifications:
"Typical Passenger Vehicles" -- Used for more than 50% qualified business use.
Total deduction (depreciation and Section 179)
Cars - $11,060
Trucks and vans - $11,160

"SUV's and Crossover Vehicles" – Used for more than 50% qualified business use.
Gross vehicle weight rating of 6,000+
Maximum deduction $25,000

"Vehicles Qualifying for Full Section 179 Deduction" – 100% business use.
Not likely to be used for personal purposes, truck bed is six feet or more (no cab), seats at least nine passengers, shuttle vans, etc…

*MUST KNOW*
If the Section 179 deduction is taken, then the adjusted taxable basis of the property is reduced by the amount of the deduction taken, it is also adjusted for the property placed in service limitation.

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