20. LU rcises asset on May 9, 2017, for $80,000. Euclid d oes mediate expensing
ID: 2530192 • Letter: 2
Question
20. LU rcises asset on May 9, 2017, for $80,000. Euclid d oes mediate expensing under $ 179. She does not claim any available cost recovery deduction foe 21. 002 Euclid acquires a 7-year class not elect im additional first-year depreciation. Calculate Euclid's 2017 and 2018. 22. LO.2 Hamlet acquires a 7-year class asset on November 23, 2017, for $100,000 Hamlet does not elect immediate expensing under § 179, He does not claim any available additional first-year depreciation. Calculate Hamlet's cost recovery deductions for 2017 and 2018. 23. LO.2 Lopez acquired a building on June 1, 2012, for $1 million. Calculate Lopezs cost recovery deduction for 2017 if the building is: Classified as residential rental real estate. Classified as nonresidential real estate. a. b. 24. LO.2 Andre acquired a computer on March 3, 2017, for $2,800. He elects the straight-line method for cost recovery. Andre does not elect immediate expens- ing under s 179. He does not claim any available additional first-year depreciation. Calculate Andre's cost recovery deduction for the computer for tax years 2017 and 2018 25. LO.2 Diana acquires, for $65,000, and places in service a 5-year class asset on December 19, 2017. It is the only asset that Diana acquires during 2017 Diana does not elect immediate expensing under s 179. She elects additional first-year deprecation. Calculate Diana's total cost recovery deduction for 2017 26. LO.3 McKenzie purchased qualifying equipment for his business that cost $212,000 in 2017. The taxable income of the business for the year is $5,600 before con- sideration of any § 179 deduction. Calculate McKenzie's § 179 expense deduction for 2017 and any carryover to 2018.Explanation / Answer
21. 2017: $80,000 x .1429 = $11,432 and for 2018: $80,000 x .2449 = $19,592. 22. Mid-quarter convention prevails. Therefore, you must use the rates for the 4th quarter from the tables. 2017: $100,000 x .0357 = $3,570 and for 2018: $100,000 x .2755 = $27,550 23. Under MACRS, the cost recovery period for residential rental real estate is 27.5 years, and the straightline method is used for computing the cost recovery allowance. Nonresidential real estate uses a recovery period of 39 years; it also is depreciated using the straight-line method. Cost recovery is computed by multiplying the applicable rate by the cost recovery basis. Residential rental real estate: $1,000,000 × .03636 = $36,360. Nonresidential rental real estate: $1,000,000 × .02564 = $25,640. 24 MACRS straight-line depreciation for personal property assuming half year convention" Since its a computer it falls in the 5 year class. Cost recovery Deduction for 2017= 2800/5/2 = $ 280 Cost recovery Deduction for 2018= 2800/5 = $ 560 25 2017: 50%additional 1styr depreciation = $65,000 * 0.5 = $32,500 MACRS cost recovery = ($65,000 - $32,500) * 0.2 = 6,500 Total cost recovery $39,000 26 Section 179 permits to elect to write off up to $500,000 of the cost of acquisition of tangibles to personal property during the first year. That amount cannot be capitalized and depreciated. There are some limitations of Section 179 which are as follows: First is if the value of assets increased $2 million, in that case excess of $2 million is deducted from writing off the amount. Next is the amount cannot be written off if more than the taxable income is less than the written off amount and if it is carried forward to the next year. McKenzie purchased assets for $212,000 and used section 179 deductions. It is required to compute McKenzie’s taxable income was $5,600 before the use of the 179 deductions. The Section 179 expense of $212,000 is less than $2 million, the entire $212,000 is eligible for the deduction. The deduction is limited to the taxable income of the current year which is $5,600. The rest of the amount is carried forward andallowed as a deduction in future years. So McKenzie’s deduction on Section 179 expense for 2017 is $5,600 and carry over to 2018 is $ 206,400
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