how is the computation of part e?
eBook Video Print Item Problem 8-38 (LO. 2, 3, 9) Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $420,000 on May 20, 2021. Lori expects the taxable income derived from her business (before considering any amount expensed under $ 179) to be about $550,000. Lori has determined that she should elect immediate $ 179 expensing in the amount of $520,000, but she doesn't know which asset she should completely expense under $ 179. She does not claim any available additional first-year depreciation. Click here to access Exhibit 8.1 and the depreciation table to use for this problem. If an amount is zero, enter "0". a. Determine Lori's total cost recovery deduction the $ 179 expense is first taken with respect to the 5-year class asset. 5-year class property Immediate expense deduction under 5 179 200,000 Regular MACRS 7-year class property Immediate expense deduction under 5 179 320,000 Regular MACRS 14,290 Total deduction 534,290 Feedback Check My Work Under the modified accelerated cost recovery system (MACRS), the cost of an asset is recovered over a predetermined period that is generally shorter than the useful life of the asset or the period the asset is used to produce income. MACRS provides separate cost recovery tables for realty Check My Work Previous Next b. Determine Lori's total cost recovery deduction if the 5 179 expense is first taken with respect to the 7-year class asset. 7-year class property Immediate expense deduction under $ 179 420,000 Regular MACRS 5-year class property Immediate expense deduction under $ 179 100,000 Regular MACRS 20,000 Total deduction 540,000 Feedback Check My Work Correct c. What is your advice to Lori? the cost recovery deduction for the year would be s 5,710 If $ 179 expense is first allocated to the seven-year larger. Feedback Check My Work Check My Work (Previous Next eBook Video Print Item d. Determine the present value of the tax savings from the cost recovery deductions for both assets, assuming that Lori is in the 24% marginal tax state and Federal income bracket and that she elects 179 for the 7-year asset. Assume MACRS depreciation and a 6% discount rate with the following present value factors: Year Factor Year Factor 2021 1.000 2025 0.7921 2022 0.9434 2026 0.7473 2023 0.8900 2027 0.7050 2024 0.8396 2028 0.6651 Round each present value computation to the nearest dollar. The present value of the tax savings from the cost recovery deductions for both assets $ 146,491 V. Feedback Check My Work Correct e. Assume the same facts as in part (d), except that Lori decides not to use 179 on either asset. Determine the present value of the tax savings under this choice. In addition, determine which option Lori should choose. Round each present value computation to the nearest dollar. The present value of the tax savings under this choice is $ Lori should elect to expense the 7-year asset. Feedback Check My Work Previous Next >
