Crouch LLC placed in service on May 19, 2014 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). Assume that the 2013 §179 limits are extended to 2014:
A) $314,380.
B) $440,000.
C) $571,510.
D) $742,930.
E) None of these.

Question

Quizplus · Accepted Answer

The maximum depreciation expense would be calculated as follows:
- §179 expensing: The limit for 2014 is $500,000, but it is reduced dollar-for-dollar once the total cost of qualifying property placed in service during the year exceeds $2,000,000. In this case, the cost of the machinery and equipment is below $2,000,000, so the full §179 deduction of $500,000 can be taken. This reduces the basis to $1,700,000.
- Regular MACRS depreciation: The 7-year property would be depreciated over a 7-year recovery period using the MACRS tables. The half-year convention would apply in the first year of service. Based on the tables, the depreciation percentage for 7-year property placed in service in May 2014 would be 17.85%. Therefore, the regular MACRS depreciation deduction would be $303,345 ((17.85% x $1,700,000) / 2) in the first year.

The maximum depreciation expense would be the sum of the §179 expensing and the regular MACRS depreciation deduction, which is $571,510 ($500,000 + $303,345). Therefore, the best choice is C.

Crouch LLC Placed in Service on May 19, 2014 Machinery