Question

Woolard Supplies (a sole-proprietorship) has taxable income in 2018 of $240,000 before any depreciation deductions (§179, bonus, or MACRS) and placed some office furniture into service during the year. The furniture had been used previously by Liz Woolard (the owner of the business) before it was placed in service by the business. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Asset / Placed In Service / Basis

Office furniture (used) / March 20 / $ 1,200,000

C. Woolard is concerned about future limitations on its 179 expense. How much 179 expense should Woolard expense this year if it wants to maximize its depreciation this year and avoid any carry over in future years?

Answer 1

Used furniture is not eligible for bonus depreciation. Depreciation rate for the first year applicable is 14.29%.

section 179 deduction is limited to the taxable income after allowing MACRS depreciation. Calculation of 179 expense election for the year is below:

Taxable income = section 179 deduction + MACRS depreciation

Section 179 deduction + MACRS depreciation = 240,000

MACRS depreciation = (1,200,000 – 179 deduction) *14.29%

Rewriting the equation:

240,000 = section 179 deduction + (1,200,000 – 179 deduction) *14.29%

Section 179 deduction = 68,520/0.8571 = 79,944

Section 179 election = 240,000 – 79,944 = 160,056