Assume that Timberline Corporation has 2017 taxable income of $240,000 for purpo

Question

Assume that Timberline Corporation has 2017 taxable income of $240,000 for purposes of computing the §179 expense. It acquired the following assets in 2017: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.)

a-1. What is the maximum amount of §179 expense Timberline may deduct for 2017?

a-2. What is Timberline’s §179 carryforward to 2018, if any?

b. What would Timberline’s maximum depreciation expense be for 2017 assuming no bonus depreciation?

c. What would Timberline’s maximum depreciation expense be for 2017 if the furniture cost $2,000,000 instead of $350,000 and assuming no bonus depreciation?

Purchase Asset Date Basis Furniture (7-year) December 1 $ 350,000 Computer equipment (5-year) February 28 90,000 Copier (5-year) July 15 30,000 Machinery (7-year) May 22 480,000 Total $ 950,000

Explanation / Answer

Answer:

a.

No.

Description

Amount

1

Property placed in service

$950000

Total qualified assets

2

Threshold for 179 phase out

$(2010000)

2017 amount(179(b)(2))

3

Phase out of maximum 179 expense

0

(1)-(2) permanently disallowed

4

Maximum 179 expense before phase out

$500000

2017 amount (179(b)(1))

5

Phase out of maximum179 expense

0

From (3)

6

Maximum 179 expense after phase out

$500000

(4)-(5)

7

Taxable income before 179 deduction

$240000

Mentioned in question

8

179 expense after taxable income limitation

$240000

Lower of (6) and (7)

9

179 expense carry forward to next year

$260000

(6)- (8)

b.

The half-year convention applies because only 15.49% of its personal property was placed in service in the4thquarter (($350,000 ? 240,000)/ (950,000 ? 240,000) = 110,000/710,000). (Because the mid-quarter test is applied after taking §179 expense, it is optimal to take the §179 expense against qualified property placed into service during the fourth quarter.)

Calculation of Depreciation expense:

Assets

Original base

179 expense

Remaining base

Rate

Dep. Expense

Furniture

$350000

$240000

$110000

14.29%

$15719

Cmputer Equipment

$90000

$90000

20.00%

$18000

Copier

$30000

$30000

20%

$6000

Machinery

$480000

$480000

14.29%

$68592

179 Expense

$240000

Total Dep. Expense

$348311

Note: Depreciation expense is maximized by applying the §179 expense against 7-year instead of 5-year property

c. The maximum 179 expense:

No.

Description

Amount

Explanation

1

Property placed in service

$2600000

Total of qualifying assets

2

Threshold for 179 phase out

$(2010000)

2017 amount(179(b)(2))

3

Phase out of maximum 179 expense

$590000

(1)-(2) permanently disallowed

4

Maximum 179 expense before phase out

$500000

2017 amount (179(b)(1))

5

Phase out of maximum 179 expense

$590000

From (3)

Maximum 179 expense after phase out

0

(4) –(5)

The maximum Depreciation Expense for 2017:

Asset

Original basis

179 Expense

Remaining basis

Quarter

Rate

Dep. Expense

Furniture

$2000000

$2000000

4th

3.57%

$71400

Computer Equipment

$90000

$90000

1st

35%

$31500

Copier

$30000

$30000

3rd

15%

$4500

Machinery

$480000

$480000

2nd

17.85%

$85680

179 expense

0

Total depreciation Expense

$193080

No.

Description

Amount

1

Property placed in service

$950000

Total qualified assets

2

Threshold for 179 phase out

$(2010000)

2017 amount(179(b)(2))

3

Phase out of maximum 179 expense

0

(1)-(2) permanently disallowed

4

Maximum 179 expense before phase out

$500000

2017 amount (179(b)(1))

5

Phase out of maximum179 expense

0

From (3)

6

Maximum 179 expense after phase out

$500000

(4)-(5)

7

Taxable income before 179 deduction

$240000

Mentioned in question

8

179 expense after taxable income limitation

$240000

Lower of (6) and (7)

9

179 expense carry forward to next year

$260000

(6)- (8)

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