Crouch LLC placed in service on May 19,2017 machinery and equipment (7-year property)with a basis of $2,200,000.Assume that Crouch has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing).(Use MACRS Table 1 in the text)
A) $314,380.
B) $340,000.
C) $605,794.
D) $742,930.
E) None of the choices are correct.

Question

Crouch LLC placed in service on May 19,2017 machinery and equipment (7-year property)with a basis of $2,200,000.Assume that Crouch has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing).(Use MACRS Table 1 in the text)
A) $314,380.
B) $340,000.
C) $605,794.
D) $742,930.
E) None of the choices are correct.

Quizplus · Accepted Answer

Since the machinery and equipment are 7-year property, they fall under MACRS table 1. According to MACRS table 1, the machinery and equipment can be depreciated using the double-declining balance method.

First, we need to calculate the double-declining balance rate which is 28.57% (100%/7 years x 2).

Using the double-declining balance method, in the first year (2017), the depreciation expense would be calculated as follows:
Year 1 Depreciation Expense = $2,200,000 x 28.57% = $628,540

Now we need to calculate the §179 expense. For 2017, the maximum Section 179 expense deduction is $510,000. Since the basis of the machinery and equipment is greater than the maximum Section 179 expense deduction, we can take the maximum §179 deduction of $510,000.

Using the §179 expense deduction and the double-declining balance method, the total maximum depreciation expense for 2017 is:
$510,000 (§179 expense) + $628,540 (double-declining balance depreciation expense) = $1,138,540

However, since Crouch LLC has sufficient income to avoid any limitations, we can take the full deduction of $2,200,000 using bonus depreciation. Therefore, the total maximum depreciation expense for 2017 is:
$2,200,000 (basis of machinery and equipment) = $2,200,000

Since we are ignoring bonus depreciation in this question, the correct answer would be:
$510,000 (§179 expense) + $605,794 (double-declining balance depreciation expense) = $1,115,794

Therefore, the maximum depreciation expense including §179 expensing (but ignoring bonus expensing) is $605,794. Answer choice C is correct.

Crouch LLC Placed in Service on May 19,2017 Machinery and Equipment