Question

Michigan Motors Inc placed in service on May 19, 2018 machinery and equipment (7-year property) with a cost basis of $3,200,000. Assume that Michigan Motors Inc has enough income to avoid any limitations. Calculate the maximum depreciation expense including IRC Sec. 179 expensing applying 2018 (but ignoring bonus depreciation)

Answer 1

Maximum section 179 expense is $1,000,000 But it is subject to phase out if total cost of assets placed in service exceeds 2.5 million.

Amount of phase out = 3.2 million - 2.5 million = 700,000.

After applying phase out limit, section 179 expesne = 1,000,000 - 700,000 = 300,000

After using 179 expense, depreciable basis of asset = 3,200,000 - 300,000 = 2,900,000

Regular depreciation = 2,900,000 * 14.29% = 414,410

Total depreciation expense = 300,000 + 414,410 = 714,410