Taxation 2 Depreciationsale of assets problems On a XYZ a p

Taxation 2

Depreciation/sale of assets problems

On --- (a)-----, XYZ a profitable company, purchased-----(b)----. It was the only fixed asset purchased during the year.

(a) March 15, 2017

October 15, 2017- For purposes of this problem, assume that taxpayerwill elect to claim 50% bonus depreciation for any scenario for which bonus depreciation is being claimed.

(b) Commercial building costing $ 1,000,000

Machinary costing $1,000,000

Machinary costing $ 2,270,000

Machinary costing $ 3,000,000

Computer equipment cost. $ 500,000

Automobile costing $ 50,000

Required:

1. Assuming that the company wants to maximize its writeoff for 2017, what is the maximum writeoff for 2017? What would the 2018 deduction be?

2. Assuming that the company does not elect Section 179 treatment, what is the maximum writeoff for 2017? For 2018? (Bonus depreciation elected)

3. Assuming that the company elects out of bonus depreciation, what is the maximum writeoff for 2017? For 2018? (Section 179 elected)

4.Assuming that the company does not elect section 179 treatment and elects out of bonus depreciation, what is the writeoff for 2017? For 2018?

Solution

If the company elects to 50% depreciation in 2017, then the same rate is applicable for 2018

Therefore, the depreciation would be:

Commercial building: 0.50 x $1000000 = $500000

Machinery: 0.50 x $1000000 = $500000

Machinery: 0.50 x $2270000 = $1135000

Machinery: 0.50 x $3000000 = $1500000

Computer equipment: 0.50 x $500000 = $250000

Automobile: 0.50 x $50000 = $25000

If the company elects not to take 50% depreciation, then it can come under MACRS depreciation.

Accordingly the depreciation rate changes as follows:

Machineries are under 7 year property classification

Computer equipment are under 5 year property classification

Automobile being a 3 year property

Building being 10 year property

Automobile: .3333 x $50000 = $16667

Computer equipment: 0.20 x $500000 = $100000

Machinery: 0.1429 x $1000000 = $142900

Machinery: 0. 1429 x $2270000 = $324383

Machinery: 0. 1429 x $3000000 = $428700

Commercial building: 0.10 x $1000000 = $100000