IN sim 46, it is mentioned that there was a net operating loss before 179 deduction and depreciation.So we cannot take 179 deduction. Why in the solution have they reduced 179 deduction of 25000 to calculate basis for combine?
Secondly when old truck is sold in year 2, why the rate of 25.5% is multiplied by 50% ?
Richard Norton recently purchased a farm. The farm is being operated as a sole proprietorship. Farm operations began on January 1, Year 1, and became profitable in Year 2. Richard uses the cash basis of accounting for book and tax purposes.
During Year 2, Richard employed as many as 20 part-time workers, including Richard’s spouse, Lucy, and children, Edward and Darla, ages 19 and 14, respectively. Lucy was unemployed during Year 1, and Richard had no other earned income for Year 1, except from the farm. Richard and Lucy filed a joint income tax return for Year 2 and Year 1.
Richard is not yet providing the farm employees with life insurance, medical and dental coverage, or retirement benefits. Richard is paying the life and medical insurance premiums for the family from personal funds.
Richard Norton had a net loss before MACRS depreciation and Section 179 deduction on the farm operations for Year 1.
Calculate the depreciation on Richard’s farm assets for Year 1 using the information in Table 1 and the 150% MACRS tables found below. Note that any property used in a farming business cannot be depreciated using the 200% declining balance method under MACRS for tax purposes.
.