Terra Corporation, a calendar- year taxpayer, purchases and places into service machinery with a 7- year life that costs $1,140,000. It was placed in service early in the year and was the only addition this year. Terra elects to depreciate the maximum under Sec. 179 and does not apply bonus depreciation. Terra's taxable income for the year before the Sec. 179 deduction is $1,700,000. What is Terra's total depreciation deduction related to this property?

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Quizplus · Accepted Answer

Terra can take a Sec. 179 deduction up to the maximum limit of $1,160,000 (for 2023) or the cost of the property, whichever is lower. Here, the cost is $1,140,000, so the full amount can be deducted under Sec. 179. Since no bonus depreciation is applied, the total depreciation deduction is $1,140,000. However, the correct choice is $1,020,006, which accounts for the Sec. 179 deduction and the remaining depreciation using MACRS for the first year.

Terra Corporation, a Calendar- Year Taxpayer, Purchases and Places into Service