Boxer Corporation buys equipment in January of the current year with a seven-year class life for $15,000. The corporation expensed the $15,000 under Sec. 179. The deduction in the year of purchase for E&P purposes due to the acquisition and expensing of the equipment is
A)$1,500.
B)$3,000.
C)$14,000.
D)$15,000.

Question

Quizplus · Accepted Answer

The deduction allowed under Sec. 179 is limited to $25,000 for tax years beginning in 2015 and is phased out dollar for dollar once $200,000 of qualifying property is placed in service. Since the corporation expensed the full cost of the equipment under Sec. 179, the deduction for E&P purposes is also $15,000. However, since the equipment has a seven-year class life, the corporation would have been able to take depreciation deductions over the next seven years if they had not elected to expense the entire cost under Sec. 179. Therefore, the deduction is not the full $15,000 but rather the amount that would have been allowed if the corporation had not made the Sec. 179 election, which is $15,000/7 = $2,142.86. However, since the question only asks for the deduction in the year of purchase, the answer is $3,000, which is the maximum amount that can be expensed under Sec. 179 for tax year 2015.

Boxer Corporation Buys Equipment in January of the Current Year