Clay LLC placed in service machinery and equipment (seven-year property)with a basis of $3,450,000 on June 6, 2019.Assume that Clay has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation).(Use MACRS Table 1.)(Round final answer to the nearest whole number.)

Question

Quizplus · Accepted Answer

Since the machinery and equipment is seven-year property, it falls under the MACRS system with a recovery period of seven years. Using MACRS Table 1, the depreciation percentages for each year are as follows:

Year 1: 14.29%
Year 2: 24.49%
Year 3: 17.49%
Year 4: 12.49%
Year 5: 8.93%
Year 6: 8.92%
Year 7: 8.93%

To calculate the maximum depreciation expense for Clay LLC including §179 expensing, we first need to determine the maximum §179 expense.

For 2019, the maximum §179 expense is $1,020,000. Since the equipment was placed in service on June 6, 2019, Clay LLC can take 50% of the maximum §179 expense, or $510,000.

To calculate the depreciation expense, we multiply the basis of the machinery and equipment by the appropriate depreciation percentage for each year. Then, we add the §179 expense for the year.

Year 1: ($3,450,000 x 14.29%) + $510,000 = $985,215
Year 2: ($3,450,000 x 24.49%) = $845,505
Year 3: ($3,450,000 x 17.49%) = $603,525
Year 4: ($3,450,000 x 12.49%) = $431,025
Year 5: ($3,450,000 x 8.93%) = $308,385
Year 6: ($3,450,000 x 8.92%) = $308,010
Year 7: ($3,450,000 x 8.93%) = $308,385

The maximum depreciation expense for 2019, including §179 expensing, is the sum of Years 1 and 2:
$985,215 + $845,505 = $1,830,720

Therefore, the correct choice is D.

Clay LLC Placed in Service Machinery and Equipment (Seven-Year Property)with