Question

7-DEPRECIATION UNDER FEDERAL INCOME TAX DEPRECIATION RULES Table 1: Half-Year Convention 200% Declining Balance Year 3 Year 5 Year7 Year 33.33% 44.45% 14.81% 7.41% 20.00% 32.00% 19.20% 11.52% 11.52% 14.29% 24.49% 17.49% 12.49% 8.9396 8.92% 8.93% 4.46% 5.76% 10 12 13 14 15 1. Below are four asset purchases made in 2012: Cost Date Asset Office Table Office Deslk File Cabinet Computer January 1, 2012 September 29, 2012 October 15, 2012 December 31, 2012 $1,000 1,500 2,000 6,000 What is the maximum 2012 Section 179 deduction for these purchases? a. $10,500 $2,500 c $8,000 d. $0 2On May 11, 2012, your calendar year firm pays $6,000 for a used computer server, its only asset purchase for the year, and estimates that the server will have a salvage value of $500. If no Section 179 deduction is taken, what is your firm's maximum 2012 deduction for depreciation? a. $2,000 b. $1,200 c. $1,100 d. $869 13

Answer 1

As per section 179, instead of getting a depreciation for fixed number of years, one is allowed to depreciate the entire cost of the asset in the year of purchase itself leading to more tax savings in the year of purchase. The business assets are allowed to have depreciation as per section 179 except and land and property related assets.

Now since the assets are allowed depreciation as per 179, the cost of all assets will be allowed as deduction:

Office table $1000

Office desk $1500

File Cabinet $2000

Computer $6000

So maximum depreciation allowed on 2012 is $10500 as per section 179 (option a)

2.Here the section 179 is not applicable and the cost of the computer is 6000$ and salvage value is $500

As per MARS depreciation, the number of years for computer is 5 years

Thus, depreciation = (6000-500)/5 = $1100 (option c)