[Anonymous]

Here’s the question:

On February 1, 2014, Pam Baker purchased a $161,000 machine (5-year property) for use in her business. Pam expensed $25,000 under Section 179 in addition to the regular depreciation of 20% in 2014 and 32% in 2015. Pam’s total deductions for 2014 and 2015 for the machine are:

A. $52,200 (2014) and $43,520 (2015).

B. $32,200 (2014) and $43,520 (2015).

C. $32,200 (2014) and $51,520 (2015).

D. $52,200 (2014) and $51,520 (2015).

Answer: A

Pam’s 2014 deduction is:

Section 179 $25,000

20% x ($161,000 – $25,000) 27,200

---

$52,200

Pam’s 2015 deduction is:

32% x ($161,000 – $25,000) = $43,520

My questions are, 1) the 179 deduction can be applied to the same property multiple years in a row? 2) how come Pam’s 2015 deduction is not calculated as 32% x ($161,000 – $25,000 – $27,200)?

[wawr47aa87]

When you elect a 179 deduction, you immediately subtract $25,000 from the machine in the year its put into use. So in this case $161-25 = $136,000 is your new depreciable base for all 5 years. So you really only account for the 179 deduction in year 1. Depreciation expense in year 1 is your 179 deduction + the depreciation % applied to the depreciable base. So $25,000 + $27,200 ($136,000x 20%) = $52,200

For 2015 it's asking for the depreciation expense for that year, not the total accumulated depreciation. $25,000 + $27,200 was the depreciation deduction for 2014 only. The correct calculation would be to take the depreciable base multiplied by the deprecation expense percentage for year 2 (in this case 32%). $136,000 x 32% = $43,520

BEC 76 (2/15)
REG 81 (4/15)
AUD 78 (5/15)
FAR 81 (7/15)

Roger + Ninja MCQ

[Author]

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