Everest Corp. acquires a machine (seven-year property) on January 10, 2018 at a cost of $2,512,000. Everest makes the election to expense the maximum amount under Sec. 179, and bonus depreciation is not claimed. a.Assume that the taxable income from trade or business is $1,500,000.  (1) What is the amount of the Sec. 179 expensing deduction for the current year? (2) What is the amount of the Sec. 179 carryover to the next tax year? (3) What is the amount of depreciation allowed?b.Assume instead that the taxable income from trade or business is $800,000.  (1) What is the amount of the Sec. 179 expensing deduction for the current year? (2) What is the amount of the Sec. 179 carryover to the next tax year? (3) What is the amount of depreciation allowed this year?

What will be an ideal response?

a. (1)Sec. 179 ceiling:$1,000,000 
Minus: Equipment cost exceeding $2,500,000( 12,000)
Allowable 179 deduction$988,000 
Taxable income for the year$1,500,000 
Sec. 179 expense (lesser of two preceding amounts)$988,000 

 (2) None. There is no carryover because there was no taxable income limitation.

 (3) Basis for depreciation:
Cost$2,512,000 
Sec. 179 deduction ( 988,000)
Minus: Basis to depreciate$1,524,000
Depreciation ($1,524,000 × 0.1429)$217,780
Sec. 179 expense allowed988,000
Total deductions$1,205,780
b.(1) Sec. 179 ceiling:$1,000,000 
Minus: Equipment cost exceeding $2,500,000( 12,000)
Equals amount over threshold$988,000 
Taxable income for the year$800,000 
Sec. 179 expense (lesser of two preceding amounts)$800,000 
 
 (2) $988,000 allowable - 800,000 currently deductible = $ 88,000 carryover.

 (3) Basis for depreciation:
Cost$2,512,000 
Sec. 179 potential deduction (including amount carried over)(988,000)
Minus: Basis to depreciate$1,524,000 
Depreciation ($1,524,000,000 × 0.1429)$217,780
Sec. 179 expense allowed800,000
Total deductions $1,017,780

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