The Boatright Accounting Firm places the following property in service during the 2013 tax year:
$\begin{array}{llll}
\text { Froperty }&\text { Placed in }\
\underline{\text { Description }}& \underline{\text { Service }} &\underline{\text { MACRS Life }}&\underline{\text { Cost B asis }} \
\text { Computers } & \text { Feb 6 } & 5 \text { years } & \$ 80,000 \
\text { Office furniture } & \text { June } 24 & 7 \text { years } & \$ 110,000 \
\text { Fax machine } & \text { Aug 3 } & 5 \text { years } & \$ 100,000 \
\text { Sidewalk } & \text { Dec 11 } & 15 \text { years } & \$ 50,000
\end{array}$
Boatright wants to obtain the maximum possible first year depreciation deduction for these property acquisitions including full utilization of the election to expense property under Section 179,but they elect out of bonus depreciation.Boatright will report 2013 taxable income in the amount of $150,000 before consideration of depreciation on their 2013 property acquisitions.What is the maximum combined amount of depreciation and Section 179 expense that may be obtained under this set of fact circumstances?

Question

The Boatright Accounting Firm places the following property in service during the 2013 tax year:
$\begin{array}{llll}
\text { Froperty }&\text { Placed in }\
\underline{\text { Description }}& \underline{\text { Service }} &\underline{\text { MACRS Life }}&\underline{\text { Cost B asis }} \
 \text { Computers } & \text { Feb 6 } & 5 \text { years } & \$ 80,000 \
\text { Office furniture } & \text { June } 24 & 7 \text { years } & \$ 110,000 \
\text { Fax machine } & \text { Aug 3 } & 5 \text { years } & \$ 100,000 \
\text { Sidewalk  } & \text { Dec 11 } & 15 \text { years } & \$ 50,000
\end{array}$
Boatright wants to obtain the maximum possible first year depreciation deduction for these property acquisitions including full utilization of the election to expense property under Section 179,but they elect out of bonus depreciation.Boatright will report 2013 taxable income in the amount of $150,000 before consideration of depreciation on their 2013 property acquisitions.What is the maximum combined amount of depreciation and Section 179 expense that may be obtained under this set of fact circumstances?

Quizplus · Accepted Answer

First, we calculate the total cost of the property acquisitions: 
$80,000 + $110,000 + $100,000 + $50,000 = $340,000

Next, we determine the maximum Section 179 expense allowed: 
$500,000 - ($340,000 - $25,000) = $185,000

($340,000 - $25,000 is the phase-out limit and $500,000 is the maximum Section 179 expense limit for 2013)

We can expense the entire cost of the computers ($80,000) and the fax machine ($100,000) under Section 179, but we can only expense $5,000 of the office furniture ($110,000) since that's the maximum amount allowed for 5-year property.

For the sidewalk, we will use the MACRS depreciation method: 
Year 1 depreciation = ($50,000 / 15) x 0.2 = $6,667

Total depreciation expense for the year: 
$80,000 (computers) + $5,000 (office furniture) + $100,000 (fax machine) + $6,667 (sidewalk) = $191,667

However, we can only deduct up to the amount of taxable income, which is $150,000. So the maximum combined amount of depreciation and Section 179 expense we can take is:

$150,000 (taxable income) + $35,001 (Section 179 expense) + $9,000 (remaining depreciation after Section 179 expense) = $194,001.

Therefore, the correct answer is C)$174,001.

The Boatright Accounting Firm Places the Following Property in Service