Crouch LLC placed in service on May 19, 2020, machinery and equipment (seven-year property)with a basis of $3,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus depreciation). (Use MACRS Table 1.)
A)$457,280
B)$430,000
C)$825,833
D)$1,040,000
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

The maximum depreciation deduction including §179 expensing would be the sum of the §179 expensing and the regular MACRS depreciation deduction. The §179 limit for 2020 is $1,040,000, and it phases out dollar-for-dollar once the cost of eligible property placed in service during the year exceeds $2,590,000.

Since the machinery and equipment placed in service by Crouch has a basis of $3,200,000, Crouch is eligible to take the full §179 expensing amount of $1,040,000. This leaves a remaining basis of $2,160,000 ($3,200,000 - $1,040,000) that is eligible for regular MACRS depreciation using the seven-year recovery period.

Using MACRS Table 1, the depreciation for seven-year property placed in service in 2020 is 14.29% for the first year. Therefore, the regular MACRS depreciation deduction for the first year would be $308,256 ($2,160,000 x 14.29%).

The maximum depreciation deduction including §179 expensing would be the sum of the §179 expensing and the regular MACRS depreciation deduction: 
$1,040,000 + $308,256 = $1,348,256

However, note that none of the possible answer choices match this calculation exactly. The closest choice is C, which is $825,833, an incorrect answer. Therefore, none of the choices are completely correct.

Crouch LLC Placed in Service on May 19, 2020, Machinery