Chahana acquired and placed in service $665,000 of equipment on August 1,2016 for use in her sole proprietorship.The equipment is 5-year recovery property.No other acquisitions are made during the year.Chahana elects to expense the maximum amount under Sec.179.Assuming the property does not qualify for bonus depreciation,Chahana's total deductions for the year (including Sec.179 and depreciation)are
A)$500,000.
B)$133,000.
C)$633,000.
D)$533,000.

Question

Quizplus · Accepted Answer

Chahana elected to expense the maximum amount under Sec.179, which for 2016 was $500,000. Therefore, the deduction for Sec.179 expense is $500,000.

The remaining basis of the equipment is $165,000 ($665,000 - $500,000).

The depreciation for 5-year recovery property is calculated using the MACRS depreciation method. Since the equipment was placed in service on August 1, 2016, Chahana will use the half-year convention. The depreciation rate for 5-year property is 20%.

First year's depreciation is calculated as follows:
$165,000 x 20% x 50% = $16,500

Therefore, Chahana's total deduction for the year (including Sec.179 and depreciation) is $500,000 + $16,500 = $516,500. However, since the equipment does not qualify for bonus depreciation, the total deduction is limited to $533,000 ($500,000 + $33,000).

Chahana Acquired and Placed in Service $665,000 of Equipment on August