Part I: Kaytlan purchased and placed in service a new $2,870,000 five-year class asset on October 1, 2019. Assume this was the only asset purchased in 2019. Kaytlan elected to take the maximum Section 179 expense deduction allowed but elected NOT to take additional first-year (bonus) depreciation. Kaytlan’s taxable income for 2019 before the cost recovery on this asset was $600,000. Be sure to show all of your calculations for each numbered item!! You must complete the assignment on this worksheet!
1. What is the maximum amount of § 179 that Kaytlan can elect in 2019?
2. What is the maximum of the Section 179 election that Kaytlan can deduct in 2019? What happens to any Section 179 not deducted in 2019, if any?
3. What is the amount of Kaytlan’s depreciable basis (fixed, constant total we have left to depreciate after we have subtracted 179, the amount we will use each year to go to the MACRS tables)?
4. What is the amount of MACRS depreciation Kaytlan can take in 2019?
5. What is the total depreciation deduction, including Section 179, per Form 4562 Line 22, for 2019?
(See page 2 for #6 and #7 and Part II).
6. Kaytlan sold the asset June 30, 2020 (during year 2). Selling price was $1,800,000.
a. What is the amount of regular (statutory) depreciation Kaytlan can take in 2020 (year 2)?
b. What is Kaytlan’s adjusted basis after the 2020 (year 2) cost recovery?
c. What is Kaytlan’s taxable gain or loss?
7. Revised scenario: Same asset acquisition date, same amount, but this time Kaytlan asks you to compute the maximum depreciation she can take without electing Section 179 at all.
- Show the calculation required to achieve the highest-possible depreciation deduction for 2019 without using Section 179. Label each calculation and describe the depreciation method used.
- Show the calculation of 2020 (year 2) depreciation assuming same sale scenario given in #6.
- Show the calculation of adjusted basis at sale date after calculation in 7b.
- Show the calculation of Kaytlan’s gain or loss, again, using the same sale proceeds given in #6 on the previous page.
