Question

1.Norwell Company purchased $1,413,200 of new business equipment on July 10, 2020. This was Norwell's only asset purchase for its 2020 taxable year. Compute Norwell's total tax depreciation deduction for this 7-year recovery property (assuming Norwell has sufficnet income for the Section 179 deduction). ?

2.Belsap Inc., a calendar year taxpayer, purchased a total of $590,000 depreciable personalty during May 2020. Which of the following statements is true?

Multiple Choice

• Belsap can elect to expense 100% of the cost.

• The amount of cost that Belsap can elect to expense depends on Belsap's 2020 taxable income.

• Belsap can elect to expense $510,000 of the cost. The $80,000 remaining cost is capitalized and subject to MACRS depreciation.

  Incorrect

• Belsap can elect to expense $510,000 of the cost. The $80,000 remaining cost is capitalized and is not depreciable.

3.B&P Inc., a calendar year corporation, purchased only one operating asset during 2020: $599,900 of used computer equipment (5-year recovery property) placed in service on March 18. Assuming that B&P makes a Section 179 election, compute B&P’s adjusted tax basis in the property at the end of 2020.?

Answer 1

Question 1:-

Per IRS, the maximum eligible depreciation under Section 179 for 2020 is $1,040,000 upto the taxable income for the year . However, this amount is reduced dollar by dollar if assets placed in service by the company during the year exceed $2,590,000.

Hence, the company would be eligible for a depreciation onf $1,040,000 under Section 179 for the new machine.

For the balance amount of $$373,200 ($1,413,200 - $1,040,000) , we calculate the depreciation expense per MACRS Seven year property as follows:-

$373,200 * 14.29% = $53,330

The total Depreciation expense is $1,093,330 ($1,040,000 + 53,330) for the year 2020.

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