Dain’s Diamond Bit Drilling purchased the following assets this year. Assume its
ID: 2779019 • Letter: D
Question
Dain’s Diamond Bit Drilling purchased the following assets this year.
Assume its taxable income for the year was $57,000 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.)
What is the maximum amount of §179 expense Dain may deduct for the year?
What is Dain’s maximum depreciation expense for the year (including §179 expense)?
If the February drill bits’ original basis was $2,406,500, 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.)
If the February drill bits’ basis was $2,526,500, what is Dain’s maximum §179 expense for the year?(Leave no answer blank. Enter zero if applicable.)
Dain’s Diamond Bit Drilling purchased the following assets this year.
Explanation / Answer
(‘a)
Section 179 Deduction- Section 179 deduction is to encourage the small and medium size business.
Dollar limit under section 179- Maximum deduction available under this section is $500,000 for tax year 2014. . This limit is applicable if cost incurred for qualifying assets is up-to $2000, 000. If cost incurred to acquire the qualifying assets exceeds $2000, 000 then dollar limit of $ 500,000 will reduced by the amount incurred over and above $200,000.
Particulars
Amount
Drill-bits (5 years)
110,500
Drill-bits (5 years)
118,750
Total amount incurred for qualifying assets
229,250
Dollar Limit Available
500,000
Deduction under Section 179
229,250
Note- (‘1) It is to be noted that dollar limit of tax year is $25,000 only , but in the question it is assumed that dollar limit of tax year 2014 for section 179 is extended for tax year 2015 also. Hence dollar limit applicable for tax year 2014 is considered here. Similarly limit for total amount of equipment in 2014 was $2000,000 but for the year 2015 it is only $200,000. Total limit of year 2014 is considered here.
(‘2) Real properties do not qualify for section 179 deduction.
(‘b)
Particulars
Amount
Section 179 deduction (as per a)
229,250
Depreciation Expenses for Commercial Building ($306,000 x 1.819 %)
5,5566
Total
234,816
Note- (‘1) No depreciation is applicable for the assets for full cost recovered under section 179.
(‘2) Commercial property will be depreciated over 39 years. As property is acquired and put to service in April month hence rate applicable for the first year as per Table 7a is 1.819 %
(‘c)
If the cost of $179 property placed in the year is $2,500,000 or more no deduction can be claimed under section.
Particulars
Amount
Drill-bits (5 years) - February
2406,500
Deduction section 179 for Feb
406,500
Deduction under 179 for Sep Drill-bits
93,500 [118750-(500,000-406,500)]
Deduction under section 179
500,000
(‘d)
If the cost of $179 property placed in the year is $2,500,000 or more no deduction can be claimed under section.
Particulars
Amount
Drill-bits (5 years) - February
2,526,500
Drill-bits (5 years) - September
118,750
Total
2525250
Deduction under section 179
118,750
Note- (‘1) No deduction available for Drill-bits February asset as its cost exceeds $ 2,500,000
Particulars
Amount
Drill-bits (5 years)
110,500
Drill-bits (5 years)
118,750
Total amount incurred for qualifying assets
229,250
Dollar Limit Available
500,000
Deduction under Section 179
229,250
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