[LO 2, LO 3] AMP Corporation (calendar year end) has 2014 taxable income of $900,000 before the §179 expense. During 2014, AMP acquired the following assets: Placed in Asset Service Basis Machinery September 12 $1,550,000 Computer Equipment February 10 365,000 Office Building April 2 480,000 Total $2,395,000 a) What is the maximum amount of §179 expense AMP may deduct for 2014 (assume the 2013 §179 limits are extended to 2014)? b) What is the maximum depreciation expense, including §179 expense, that AMP may deduct in 2014 on the assets it placed in service in 2014 assuming no bonus depreciation (assume the 2013 §179 limits are extended to 2014)? a. The maximum §179 expense is $500,000. Description Amount Explanation (1) Property placed in service in 2014 $1,915,000 Total §179 qualified property (2) Threshold for §179 phase-out (2,000,000) 2014 amount [§179(b)(2)] (3) Phase-out of maximum §179 expense $-0- (1) (2) (permanently – not less disallowed), than $0. (4) Maximum 179 expense before phase-out $500,000 2014 amount [§179(b)(1)] (5) Phase-out of maximum §179 expense $-0- From (3) (4) (5) Maximum §179 expense after phase-out $500,000 – b. The maximum depreciation expense is $731,776 (half-year convention). Depreciation is maximized by applying the §179 expense against 7-year rather than 5- year property. Original §179 Remaining Depreciation Asset Basis Expense Basis Rate Expense $1,550,000 $500,000 $1,050,000 14.29% $150,045 Machinery (7-year) Computer Equipment (5- $365,000 $365,000 20.00% $73,000 year) $480,000 $480,000 1.819% $8,731 Office building (39 year) $500,000 §179 Expense cost recovery $731,776
[LO 2, LO 3] AMP Corporation (calendar year end) has 2014 taxable income of $900,000 before the §179 expense. During 2014, AMP acquired the following assets: Asset Placed in Service Basis Machinery September 12 $1,550,000 Computer Equipment February 10 365,000 Office Building April 2 480,000 Total $2,395,000 a) What is the maximum amount of §179 expense AMP may deduct for 2014 (assume the 2013 §179 limits are extended to 2014)? b) What is the maximum depreciation expense, including §179 expense, that AMP may deduct in 2014 on the assets it placed in service in 2014 assuming no bonus depreciation (assume the 2013 §179 limits are extended to 2014)? a. The maximum §179 expense is $500,000. Description Amount Explanation (1) Property placed in service in 2014 $1,915,000 Total §179 qualified property (2) Threshold for §179 phase-out (2,000,000) 2014 amount [§179(b)(2)] (3) Phase-out of maximum §179 expense $-0- (1) – (2) (permanently disallowed), not less than $0. (4) Maximum 179 expense before phase-out $500,000 2014 amount [§179(b)(1)] (5) Phase-out of maximum §179 expense $-0- From (3) Maximum §179 expense after phase-out $500,000 (4) – (5) b. The maximum depreciation expense is $731,776 (half-year convention). Depreciation is maximized by applying the §179 expense against 7-year rather than 5- year property. Asset Original Basis §179 Expense Remaining Basis Rate Depreciation Expense Machinery (7-year) $1,550,000 $500,000 $1,050,000 14.29% $150,045 Computer Equipment (5- year) $365,000 $365,000 20.00% $73,000 Office building (39 year) $480,000 $480,000 1.819% $8,731 §179 Expense $500,000 cost recovery $731,776