So this question has me totally confused. I feel like I've seen this one come up before, but I can't seem to find any explanation that makes sense:
Question:
Sally Markey, who owns a heavy construction company, decided to spend some of her $2,000,000 2014 profit on a heavy-duty diesel truck costing $811,000 for her business. In order to lower her income taxes for the year, she decided to take the maximum Section 179 deduction plus the MACRS depreciation for 7-year property. The ceiling for Section 179 in 2014 is $25,000. No other capital assets were purchased during 2014. What is the total deduction for the truck in 2014?
A. $25,000
B. $137,319
C. $112,319
D. $405,500
Answer is B. $137,319
Explanation:Sally Markey took the largest Section 179 deduction available in 2014, $25,000. This reduced the truck tax basis to $786,000 ($811,000 – $25,000). Depreciation available for the first year of MACRS is $112,319 ($786,000 × 0.1429). Total expense is $137,319 for the year ($25,000 + $112,319).
I thought that the $25,000 deduction is phased out when the purchase cost exceeds $200,000? I'm confused. I feel like I've read somewhere that the phaseout only applies in a situation in which the equipment is placed into service, and not necessarily when it was purchased (although in real life that would usually be simultaneous I would think). Has anyone come across this or have any explanation as to why the $25,000 deduction was allowable? Or am I thinking too hard on this and when the question says “She decided to take the maximum Section 179 deduction” I should just take it as that, and not think about the phaseout??
B - 80
A - 82
R - 79
F - 77
Boom
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