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LO6 Rograin Corporation purchases turning lathes costing $1,603,000 and bus- es costing $975,000 in June of the current year.

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Answer #1

The question has mentioned that Company makes investment in June of current year. Hence I am considering June 2020 as the period of investment. Hence I am using the latest IRS ruling with respect to Sec. 179 deduction.

Maximum Deduction u/s 179 Amount
Turning lathes $1,603,000
Buses $975,000
Total investment $2,578,000
Limit $2,590,000
Investment in excess of limit $0
Maximum deduction u/s 179 $1,040,000

Hence maximum deduction u/s 179 is $1,040,000

Depreciable basis of the assets assuming maximum deduction u.s 179 is as follows. There is option to choose the asset from which deduction u/s 179 to be reduced. It will be beneficial to choose the asset that has a long recovery period. Hence turning lathes is choosed

Depreciable Basis Gross Deduction u/s 179 Depreciable Basis
Turning lathes $1,603,000 $1,040,000 $563,000
Buses $975,000 $975,000

First year depreciation is $1,315,452.70 as shown in the table below.

Category Amount
Turning lathes - Section 179 deduction $1,040,000.00
Turning lathes - MACRS ($563,000 * 14.29%) $80,452.70
Buses - MACRS ($975,000 * 20%) $195,000.00
Total depreciation for Year 1 $1,315,452.70

Happy Learning!

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