[Anonymous]

A taxpayer purchased and placed in service during the year a $761,000 piece of equipment. The equipment is 7-year property. The first-year depreciation for 7-year property is 14.29%. There is an allowable Section 179 limit in 2014 of $25,000. What amount is the maximum allowable depreciation without using bonus depreciation?

A. $25,000

B. $105,174

C. $130,174

D. $108,747

C. A taxpayer who elects to expense under Section 179 must reduce the depreciable basis of the Section 179 property by the amount of the Section 179 expense deduction. The maximum allowable depreciation is calculated as follows:

Basis of property $761,000

Less: Section 179 expense (25,000)

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Adjusted basis $736,000

1st-year MACRS rate x 14.29%

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1st-year depreciation $105,174

Section 179 expense 25,000

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Maximum allowable depreciation $130,174

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The question specifically stated this is for 2014. The max section 179 Deduction is $25,000, and that is phased-out dollar for dollar for the amount of equipment purchases that exceed $200,000. So the allowable section 179 expense deduction for this question should $0, not $25,000. Right guys?

[LongShot]

I would agree with you that it appears to be an incorrect answer.

The only thing I could really see is that it says “There is an allowable Section 179 limit in 2014 of $25,000” so it could be telling you to just assume there is an allowable 179 deduction of $25k for the question and wants to see if you can apply that correctly. So, worst case is an incorrect answer and best case is just a severely misleading question that ignores the phase out.

FAR - 75
AUD - 72; 87
REG - 64; 74; 84
BEC - 88

Done!!

[Author]

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