Question

Olga is the proprietor of a small business. In 2018, the business’s income, before consideration of any cost recovery or § 179 deduction, is $250,000. Olga spends $620,000 on new 7-year class assets and elects to take the § 179 deduction on them. She does not claim any available additional first-year depreciation. Olga’s cost recovery deduction for 2018, except for the cost recovery with respect to the new 7-year assets, is $95,000. Determine Olga’s total cost recovery for 2018 with respect to the 7-year class assets and the amount of any § 179 carryforward.

Answer 1

Part A

Total cost recovery with respect to the 7-year class assets = $241000

Cost recovery for 7-year class assets[($620,000 − $1000000) × .1429] = $0

The maximum Section 179 deduction is equal to up to $1000000

Income limitation
Income before § 179 and cost recovery	250000
Cost recovery ($95,000 + $0)	50000
§ 179 deduction for the seven-year class after any income limitation	$241000

§ 179 deduction for the seven-year class after any income limitation	$241000
Cost recovery for 7-year class assets	0
Total	$241000

Part B

Amount of any § 179 carryforward = 1000000-241000 = $759000