Lenter LLC placed in service on April 29,2013 machinery and equipment (7-year property) with a basis of $600,000.Assume that Lenter has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including section 179 expensing (but ignoring bonus expensing) :
A)$85,740
B)$120,000
C)$514,290
D)$585,740
E)None of these

Question

Quizplus · Accepted Answer

Since the asset is 7-year property and was placed in service in April (the fourth month of the year), the applicable MACRS depreciation rate for the year of acquisition is 14.29% (2.17% for the first month, 2.89% for the second and third months, and 1.72% for the fourth month). Thus, the maximum depreciation expense for the year of acquisition would be:

($600,000 x 14.29%) = $85,740

However, the problem asks for the maximum depreciation expense including Section 179 expensing. The Section 179 expense deduction limit for 2013 was $500,000, but the deduction is reduced dollar-for-dollar for purchases in excess of $2,000,000. Since the cost of the machinery and equipment is less than $2,000,000, Lenter is eligible for the full Section 179 deduction of $500,000.

Therefore, the maximum depreciation expense for the year of acquisition would be:

($600,000 - $500,000) = $100,000

Plus

($85,740 - $100,000) x 14.29% = $514,290

Total = $614,290

So, the correct answer is C.

Lenter LLC Placed in Service on April 29,2013 Machinery and Equipment