Kemp Inc., a calendar year taxpayer, generated over $10 million taxable income in 2013. Kemp made one asset purchase: manufacturing equipment costing $543,600. The equipment has a 7-year recovery period and was placed in service on June 14. Assuming that Kemp made the Section 179 election with respect to the equipment, compute Kemp's 2013 cost recovery deduction.

Question

Quizplus · Accepted Answer

Since Kemp made the Section 179 election, they can expense up to $500,000 of the cost of the equipment in the year it was placed in service. Since the equipment cost $543,600, they can expense the full $500,000 and then depreciate the remaining $43,600 over the 7-year recovery period.

Therefore, the cost recovery deduction for 2013 is:
$500,000 (Section 179 expense deduction) + [$43,600 / 7 (depreciation deduction)] = $524,915

Kemp Inc, a Calendar Year Taxpayer, Generated Over $10 Million Taxable