Crouch LLC placed in service on May 19, 2023, machinery and equipment (seven-year property) with a basis of $3,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus depreciation). (Use MACRS Table 1.)
Question
Crouch LLC placed in service on May 19, 2023, machinery and equipment (seven-year property) with a basis of $3,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus depreciation). (Use MACRS Table 1.)
Solution
To calculate the maximum depreciation deduction for Crouch LLC, we need to follow these steps:
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Determine the §179 expensing: The §179 deduction allows businesses to deduct the full purchase price of qualifying equipment purchased during the tax year. For 2023, the maximum amount that can be deducted is 2,620,000 is spent by a business (phase-out threshold). In this case, Crouch LLC has spent 580,000 over the phase-out threshold. Therefore, the §179 deduction is reduced by 470,000 (580,000).
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Calculate the basis for MACRS after §179 expensing: The basis for MACRS depreciation is the cost of the property minus any §179 expense deduction. In this case, the basis for MACRS after §179 expensing is 3,200,000 - $470,000).
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Determine the MACRS depreciation: The machinery and equipment are seven-year property. According to MACRS Table 1, the depreciation rate for seven-year property placed in service during the first year is 14.29%. Therefore, the MACRS depreciation for the first year is 2,730,000 * 14.29%).
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Add the §179 expensing and MACRS depreciation: The maximum depreciation deduction including §179 expensing is the sum of the §179 expensing and the MACRS depreciation. In this case, the maximum depreciation deduction is 470,000 + $390,137).
Therefore, the maximum depreciation deduction for Crouch LLC for the machinery and equipment placed in service on May 19, 2023, is $860,137.
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