1. On June 30, 2017 Mike’s Min

1. On June 30, 2017 Mike’s Mining purchased $1,200,000 of newmining equipment. Mike’s Mining wants to maximize its depreciation.This was the only asset purchased during the year. Ignoring anyincome limitations, what amount of depreciation can be claimed in2017 related to the purchase of this equipment?

2. Beulah, a beauty consultant, purchased a new computer onMarch 1, 2017 for $1,500. Beulah uses the computer 80% for businesspurposes and 20% for personal purposes. Beulah has elected not touse bonus or Section 179 depreciation. This was her only assetpurchase during the year. How much deprecation can she claim usingMACRS accelerated depreciation?

Answer:

The maximum amount you can elect to deduct for most section 179property you placed in service in tax years beginning in 2017 is$510,000 and here the asset purchased is $ 1,200,000. So it doesntQualify for Sec 179 Depriciation.

the Mike’s Mining wants to maximize its Depriciation. So it canuse Macrs depriciation which will result in larger depriciation inearlier years. Or it can use Straight line method providing equaldepricaition in all years

Mining Equipment comes under the 7 yearclassification of asset in MACRS.

Depriciation = $1,200,000* 14.286% =$ 171,429. ( Same both incase of Macrs and Straight line )

then, in Macrs

S .no year basis percentage depriciation method
1 2017 $1,200,000 14.286 $171429 DB
2 2018 $1,200,000 24.490 $293878 DB
3 2019 $1,200,000 17.493 $209913 DB
4 2020 $1,200,000 12.495 $149938 DB
5 2021 $1,200,000 8.925 $107098 SL
6 2022 $1,200,000 8.925 $107098 SL
7 2023 $1,200,000 8.925 $107098 SL
8 2024 $1,200,000 8.925 $53549 SL

2. Since Beulah is not opting for Section 179Depriciation instead of availing full depriciation in the year ofpurchase she will be eligible to take part of depriciation incurrent year and rest in succeding years.

she has purchased computer on March 1 which iscovered under 5 year classification. the method iadopted is GDS using 200% DB. with half year convention.(it giveslarger depriciation in earlier years.and Straight line gives equaldepriciation in every year.

she uses computer 80% for business purposewhich gives us the unadjusted basic value of $ 1500*80% = $1200

Depriciation = 1200* 20% = $ 240 for the current year

s.no year basis percentage depriciation

accumulated dep

ending book value method
1 2017 $1200 20.00% $240 $240 $960 DB
2 2018 $1200 32.00% $384 $624 $576 DB
3 2019 $1200 19.20% $230 $854 $346 DB
4 2020 $1200 11.52% $138 $993 $207 SL
5 2021 $1200 11.52% $138 $1131 $69 SL
6 2022 $1200 5.76% $69 $1200 0

depriciation rate are from depriciation rate tableA-1

Note that since the declining balance (DB)depreciation for year 2020 ($138) would be less than or equal tothe straight line (SL) depreciation ($138),straight line depreciation is used for year 2020 as well as theremainder of the recovery period — as indicated in the “M”(Method) column.


 
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