Sophie owns an unincorporated manufacturing business. In 2018, she purchases and places in service $2,507,000 of qualifying five- year equipment for use in her business. Her taxable income from the business before any Sec. 179 deduction is $940,000. Sophie elects to expense the maximum under Sec. 179 and does not apply bonus depreciation. What is Sophie's maximum total cost recovery deduction for 2018?

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Sophie's maximum Sec. 179 deduction is limited to her taxable income of $940,000. The remaining cost of the equipment can be depreciated using MACRS. The maximum Sec. 179 deduction for 2018 is $1,000,000, but it is reduced dollar-for-dollar for amounts over $2,500,000. Thus, the deduction is reduced by $7,000 ($2,507,000 - $2,500,000), resulting in a maximum Sec. 179 deduction of $993,000. However, since her taxable income is $940,000, she can only deduct $940,000 under Sec. 179. The remaining $1,567,000 ($2,507,000 - $940,000) is depreciated over five years using MACRS, resulting in a first-year depreciation of $302,800 (20% of $1,513,000). Therefore, the total cost recovery deduction is $940,000 + $302,800 = $1,242,800.

Sophie Owns an Unincorporated Manufacturing Business