Question

2. Wally acquires and places in service a new machine (seven year property) on january 10, 2018 at a cost of $1,080,000. Wally makes the election to expense the maximum amount under 179, but does not elect to maximize his first year MACRS depreciation deduction. Determine the total depreciation deduction Wally may claim on his 2018 federal income tax return, based on the elections he wants to make? Assume Wally has taxable income of 350,000 in 2018.

Answer 1

As Wally wants to take sec 179 benefits and not MACRS benefit , the maximum amount of sec 179 deduction available for 2018 is $1000,000 ( as the purchase cost is below $2.5M).

However , the Taxable income is $350,000 in 2018, so wally can claim $350,000 of Sec 179 benefit in 2018 and rest of the $650,000 sec 179 benefit needs to be carried forward for next years.

Not considering bonus depreciation in 2018 as there is insufficient taxable income to set off bonus depreciation and it will be prudent to use bonus depreciation against future years taxable income.