Karane Enterprises, a calendar-year manufacturer based in College Station, Texas, began business in 2019. In the process of setting up the business, Karane has acquired various types of assets. Below is a list of assets acquired during 2019: Asset Office furniture Machinery Used delivery truck* Cost $ 150,000 1,560,000 40,000 Date Placed in Service 02/03/2019 07/22/2019 08/17/2019 *Not considered a luxury automobile. During 2019, Karane was very successful and had no $179 limitations) and decided to acquire more assets in 2020 to increase its production capacity. These are the assets acquired during 2020: Asset Computers & info. system Luxury autot Assembly equipment Storage building Cost $ 400,000 80,000 1,200,000 700,000 Date Placed in Service 03/31/2020 05/26/2020 08/15/2020 11/13/2020 fUsed 100% for business purposes. Karane generated taxable income in 2020 of $1,732,500 for purposes of computing the $179 expense limitation. (Use MACRS Table 1, Table 2. Table 3, Table 4, Table 5, and Exhibit 10-10.) (Leave no answer blank. Enter zero if applicable. Input all the values as positive numbers.) a. Compute the maximum 2019 depreciation deductions, including $179 expense (ignoring bonus depreciation). Answer is complete but not entirely correct. Description Office furniture Machinery Delivery truck Total 2019 Cost Recovery Cost $179 Expense $ 150,000 $ $ 1,560,000 1,000,000 X 40,000 0 $ 1,750,000 $ 1,000,000 MACRS Current Total Cost MACRS Recovery Basis Depreciation Deduction 150,000 $ 21,435$ 21,435 560,000 80,024 X 1,080,024 40,000 8,000 8.000 750,000 $ 109,459 1,109,459 b. Compute the maximum 2020 depreciation deductions, including $179 expense (ignoring bonus depreciation). Answer is complete but not entirely correct. Description Cost Sec. 179 Expense MACRS Basis Current MACRS Depreciation Total Cost Recovery Deduction $ 2019 Assets Office furniture Machinery Used delivery truck 150,000 $ 1,560,000 40,000 0$ 0 0 150,000 $ 560,000 $ 40,000 21,435 X $ 80,024 X 8,000 21,435 80.024 8,000 2020 Assets Computers & Info. System Luxury Auto Assembly Equipment Storage Building 22,000 X 0 X 400,000 80,000 1,200,000 700,000 110,000 X 70,000 1,200,000 X 312,000 10.000 290,000 10,000 0 X 700,000 X 240,000 > 240,000 700,000 0 0 X Total 2020 Cost Recovery $ 4,130,000 $ 1,000,000 $ 2,130,000 $ 371,459 $ 1,371,459 c. Compute the maximum 2020 depreciation deductions, including $179 expense, but now assume that karane would like to take bonus depreciation. Answer is complete but not entirely correct. Description Cost Sec. 179 Expense Bonus MACRS Basis Current MACRS Depreciation Total Cost Recovery Deduction $ $ 2019 Assets Office Furniture Machinery Used Delivery Truck 150,000 1,560,000 0$ 0 0 0 0 0 X $ 195,000 X 15,000 X 0 47,756 47.756 X 4.800 X 40.000 4.800 40.000 X 40,000 X 7,500 X 7,500 X 1,500 X 9,000 2020 Assets Computers & Info System Luxury Auto Assembly Equipment Storage Building 80,000 1,200,000 700,000 0 1,200,000 0 8,000 0 X 0 72,000 0 700.000 3,160 x 0 2,247 11,160 1,200,000 2,247 Total 2020 Cost Recovery $ 3,770,000 $ 1,240,000 $ 15,500 $ 989,500 $ 59,463 $ 1,274,963 d. Now assume that during 2020, Karane decides to buy a competitor's assets for a purchase price of $1,350,000. Compute the maximum 2020 cost recovery, including $179 expense and bonus depreciation. Karane purchased the following assets for the lump- sum purchase price: (Round your final answers to the nearest whole dollar amount.) Asset Inventory Office furniture Machinery Patent Goodwill Building Land Cost $ 220,000 230,000 250,000 198,000 2,000 430,000 20,000 Date Placed in Service 09/15/2020 09/15/2020 09/15/2020 09/15/2020 09/15/2020 09/15/2020 09/15/2020 Description Cost Sec. 179 Expense Bonus MACRS Basis Current MACRS Depreciation Current Amortization Total Cost Recovery Deduction $ 2019 Assets Office Furniture Machinery Used Delivery Truck 0 0 0 2020 Assets Computers & Info System Luxury Auto Assembly Equipment Storage Building 0 0 0 0 0 Inventory Office Furniture Machinery Patent Goodwill Building Land 0 0 0 0 Totals 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 e. Complete Karane Enterprises's Form 4562 for part (b). (Input all values as positive numbers. Use 2020 tax rules regardless of year on tax form.) Do not skip rows when entering property under line item 26 of Form 4562. * Answer is not complete. Form 4562 PG Form 4562 PG 1 2 Form 4562 Page 1 and 2. OMB No. 1545-0172 2019 Attachment Sequence No. 179 Identifying number(xxx-xx-xxxx) Form 4562 Depreciation and Amortization (Including Information on Listed Property) Department of the Treasury Attach to your tax return. Internal Revenue Service (99) Go to www.irs.gov/Form4562 for instructions and the latest information. Name(s) shown on return Business or activity to which this form relates Karane Enterprises Part1 Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I. 1 Maximum amount (see instructions) 2 Total Cost of section 179 property placed in service (see instructions) 3 Threshold cost of section 179 property before reduction in limitation (see instructions) 4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter-O- 5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter-O-. If married filing separately, see instructions (b) Cost (business 6 (a) Description of property (c) Elected cost use only)) Assembly equipment 0 x 0 X 1 2 0 0 0 3 4 0 0 5 8 0 0 0 0 0 7 Listed property. Enter the amount from line 29 7 0 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 9 Tentative deduction. Enter the smaller of line 5 or line 8 9 9 10 Carryover of disallowed deduction from line 13 of your 2018 Form 4562 10 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5. see instructions 11 12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11 12 13 Carryover of disallowed deduction to 2020. Add lines 9 and 10, less line 12 13 0 Note: Do not use Part Il or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don't include listed property. see instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year. See instructions 14 15 Property subject to section 168(1)(1) election 15 16 Other depreciation (including ACRS) 16 0 0 0 nu MACDS ............... Part III MACRS Depreciation (Don't include listed property. See instructions.) Section A 17 MACRS deductions for assets placed in service in tax years beginning before 2019 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here 17 e) Convention (9) Depreciation deduction Section B-Assets Placed in Service During 2019 Tax Year Using the General Depreciation System (c) Basis for depreciation (a) Classification of property (b) Month and year (business/investment (d) Recovery period (e) Convention placed in service (1) Method use only-See instructions) 19a 3-year property 0 b 5-year property 0 x c7-year property 0 X 100% d 10-year property 0 e 15-year property 0 100% f 20-year property 0 100% 100% g 25-year property 0 25 yrs 100% S/L h Residential rental 0 0 MM S/L property 0 0 MM S/L i Nonresidential real 0 x MM S/L property 0 0 0 MM S/L Section C-Assets Placed in Service During 2019 Tax Year Using the Alternative Depreciation System 20a Class life 0 100% 100% S/L b 12-year 0 100% S/L C 30-year 0 0 30 yrs. MM S/L d 40-year 0 0 MM S/L Part IV (See Summary instructions) 21 Listed property. Enter amount from line 28 21 22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21. Enter here and on the appropriate lines of your return. Partnerships and Scorporationssee instructions 22 23 For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs 23 0 For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 12906N THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM IT SELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2020 McGraw-Hill Education. 0 0 X 0 X 0 0 0 0 0 0 0 X 0 27.5 yrs 27.5 yrs. 39 yrs. 0 0 12 yrs. 0 40 yrs. 0 0 X 0 x Form 4562 (2019) Page 2 Form 4562 (2019) Part V Listed Property (Include automobiles, certain other vehicles, certain aircraft, and property used for entertainment, recreation, or amusement.) Note: For any vehicle for which you are using the standard mileage rate or deducting lease expense, complete only 24a, 24b, columns (a) through (c) of Section A, all of Section B, and Section Cif applicable Section A-Depreciation and Other Information (Caution: See the instructions for limits for passenger automobiles.) 24a Do you have evidence to support the business/investment use claimed? Yes No 24b If "Yes," is the evidence written? (a) Type of (b) Date placed in (e) Basis for depreciation (1) (h) property (list service (d) Cost or (g) Business/investment (business/investment use other basis Recovery vehicles first) Depreciation (mm/dd/yyyy) Method/Convention use percentage only) period deduction Yes No ) Elected section 179 cost 25 Special depreciation allowance for qualified listed property placed in service during the tax year and used more than 50% in a 0 qualified business use. See instructions 25 26 Property used more than 50% in a qualified business use: 100% X 100% x 100% 100% X 100% x 100% X 100% X 0 0 100% 100% 100.00% 100% 100% 100% 100% 0 0 100% 100% 100.00% 100% 100% 100% 100% 0 0 27 Property used 50% or less in a qualified business use: 100% 100% 100.00% 100% 100% 100% S/L- L- 0 0 100% 100% 100.00% 100% 100% 100% S/L- 0 0 100% 100% 100.00% 100% 100% 100% S/L- 0 0 28 Add amounts in column (h), lines 25 through 27. Enter here and on line 21, page 1 28 0 29 Add amounts in column (1), line 26. Enter here and on line 7, page 1 29 0 Section B-Information on Use of Vehicles Complete this section for vehicles used by a sole proprietor, partner, or other "more than 5% owner," or related person. If you provided vehicles to your employees, first answer the questions in Section C to see if you meet an exception to completing this section for those vehicles. 30 Total business/investment miles driven during the year (don't include (a) Vehicle 1 (b) Vehicle 2 (c) Vehicle 3 (d) Vehicle 4 (e) Vehicle 5 (1) Vehicle 6 commuting miles) 0 0 0 0 0 0 31 Total commuting miles driven during the year 0 0 0 0 0 0 32 Total other personal (noncommuting) miles driven 0 0 0 0 0 0 33 Total miles driven during the year. Add lines 30 through 32 0 0 0 0 0 0 34 Was the vehicle available for personal use during Yes No Yes No Yes No Yes No Yes No Yes No off-duty hours? 35 Was the vehicle used primarily by a more than 5% owner or related person? O O 36 Is another vehicle available for personal use? OOL . OOH Section C-Questions for Employers Who Provide Vehicles for Use by Their Employees Answer these questions to determine if you meet an exception to completing Section B for vehicles used by employees who aren't more than 5% owners or related persons. see instructions. Yes No lo 37 Do you maintain a written policy statement that prohibits all personal use of vehicles, including commuting, by your employees? 38 Do you maintain a written policy statement that prohibits personal use of vehicles, except commuting, by your employees? See the instructions for vehicles used by corporate officers, directors, or 1% or more owners. , 1% . 39 Do you treat all use of vehicles by employees as personal use? 40 Do you provide more than five vehicles to your employees, obtain information from your employees about the use of the vehicles, and retain the information received? 41 Do you meet the requirements concerning qualified automobile demonstration use? See instructions. Note: If your answer to 37, 38, 39, 40, or 41 is "Yes," don't complete Section B for the covered vehicles. Part VI Amortization (b) Date (e) Amortization amortization (a) Description of costs (c) Amortizable amount (d) Code section begins period or (mm/dd/yyyy) percentage 42 Amortization of costs that begins during your 2019 tax year (see instructions) 100% 100% 100% 100% 100.00% 100% 100% 100% 100% 100.00% 43 Amortization of costs that began before your 2019 tax year. 44 Total. Add amounts in column (f). See the instructions for where to report. (1) Amortization for this year 0 0 0 43 44 Form 4562 (2019) THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2020 McGraw-Hill Education. 20-Year 3.750% 7.219 Table 1 MACRS Half-Year Convention Depreciation Rate for Recovery Period 3-Year 5-Year 7-Year 10-Year 15-Year Year 1 33.33% 20.00% 14.29% 10.00% 5.00% Year 2 44.45 32.00 24.49 18.00 9.50 Year 3 14.81 19.20 17.49 14.40 8.55 Year 4 7.41 11.52 12.49 11.52 7.70 Year 5 11.52 8.93 9.22 6.93 Year 6 5.76 8.92 7.37 6.23 Year 7 8.93 6.55 5.90 Year 8 4.46 6.55 5.90 6.677 6.177 5.713 5.285 4.888 4.522 Year 9 6.56 5.91 4.462 Year 10 6.55 5.90 Year 11 3.28 5.91 4.461 4.462 4.461 Year 12 5.90 Year 13 5.91 4.462 Year 14 5.90 4.461 4.462 Year 15 5.91 Year 16 2.95 4.461 Year 17 4.462 Year 18 4.461 Year 19 4.462 Year 20 4.461 Year 21 2.231 1. Year TABLE 2 MACRS Mid-Quarter Couveuties: For properly placed in service during the first quarter Depreciation Rate for Recovery Period S-Year Year 1 35.00% 25.00% Year 2 26.00 Year 3 15.60 13.31 Year 4 11.01 10.93 Years 11.01 Year 6 1.35 8.74 Year 7 5.73 Years 1.09 TABLE 25 MACRS AGA-Quarter Convention: For property placed in serice during the ate quente Depreciation Rate for Recovery Period 5-Year 1-Year Year 1 17.53% Year 2 30.00 Year 3 18.00 16.76 Year 4 11.37 11.97 Year 5 11.37 Year 3.57 Year 7 Years TABLE 2 MACRS Mid-Quarter Convention: For gropery placed in serie during the bird quarter Depreciation Rate for Recovery Period 5-Year 7-Year Year 1 15.00% 10.7136 Year 2 34.00 25.51 20.40 18.22 Year 4 12.24 13.02 Years 11.30 9.30 Year 6 7.06 8.85 Year 7 8.86 Years 5.33 TABLE 2d MACRS-Mid Quarter Conventiou: For property placed is crice during the fourth quarter Depreciation Rate for Recovery Period 5-Year 7-Year Year 1 5.00% 3.5796 Year 2 38.00 27.55 Year 3 22.80 19.68 Year 4 13.68 14.06 Years 10.94 10.04 Year 6 9.58 8.73 Year 7 8.73 Year 3 7.64 Month 9 Month 8 1.364% 1.061 3.636 3.636 3.636 3.637 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 Month 10 Month 11 Month 12 0.758% 0.455% 0.152 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.636 3.636 3.636 3.637 3.637 3.637 3.636 3.636 3.636 3.637 3.637 3.637 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 TABLE 3 Residential Rental Property Mid-Month Convention Straight Line27.5 Years Month Property Placed in Service Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Year 1 3.485% 3.182% 2.879% 2.576% 2.273% 1.970% 1.667% Year 2-9 3.636 3.636 3.636 3.636 3.636 3.636 3.636 Year 10 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 11 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 12 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 13 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 14 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 15 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 16 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 17 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 18 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 19 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 20 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 21 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 22 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 23 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 24 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 25 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 26 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 27 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 28 1.97 2.273 2.576 2.879 3.182 3.485 3.636 Year 29 0.152 3.636 3.636 3.637 3.637 3.636 3.636 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.637 3.636 3.636 3.637 3.637 3.637 3.636 3.637 3.637 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 1.667 0.455 0.758 1.061 1.364 Mouth 12 0.1329 3.173 3.173 3.175 3.174 3.175 3.174 3.175 3.174 3.173 TABLE 4 Nouresidential Real Property Mid-Month Contentios Straight List315 Years (for assets placed in service before May 13, 1993) Mouth Property Placed in Service Mosch 1 Mouch 2 Mouch 3 Mouth 4 Months Mouch 6 Mouch 7 Mouch 8 Mouch 9 Year 1 3.0429 2.775% 2915% 1.934% 1.720% 1.190% 0.926% Year 2-7 3.173 3.175 3.175 3.173 3.173 3.175 3.173 3.173 3.173 Years 3.173 3.173 3.174 3.174 3.173 3.175 Year 9 3.174 3.173 3.174 3.173 3.173 3.173 Year 10 3.173 3.174 3.173 3.174 3.175 3.174 3.173 3.174 3.173 Year 11 3.175 3.174 3.173 3.174 3.173 3.174 3.175 3.174 Year 12 3.173 3.173 3.173 3.174 3.173 3.174 3.175 Year 13 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.174 Year 14 3.173 3.174 3.173 3.173 3.173 3.173 Year 15 3.174 3.173 3.174 3.173 3.175 3.174 3.173 3.174 Year 16 3.173 3.174 3.174 3.173 3.174 3.173 3114 Year 17 3.174 3.173 3.173 3.173 3.174 3.179 Year 15 3.173 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.173 Year 19 3.174 3.173 3.174 3.175 3.174 3.173 3.174 3.173 3.174 Year 20 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.173 Year 21 3.174 3.173 3.174 3.173 3.173 3.174 3.173 3.174 Year 22 3.173 3.174 3.173 3.174 3.173 3.173 3.174 3.173 Year 23 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.113 3.174 Year 24 3.173 3.174 3.175 3.174 3.175 3.174 3.173 3.175 Year 25 3.174 3.173 3.174 3.175 3.174 3.173 3.174 3.173 3.174 Year 26 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 Year 27 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 Year 25 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.173 Year 29 3.174 3.173 3.174 3.173 3.173 3.174 3.173 3.174 Year 30 3.173 3.174 3.173 3.174 3.173 3.173 3.173 Year 31 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 Year 32 1.720 1.954 2313 3.173 3.174 3.173 Year 33 0.132 0.397 0.661 Mouch 10 0.661% 3.173 3.173 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.175 3.174 3.173 3.174 3.173 3.174 3.173 3.174 0.925 Month 11 0.397% 3.175 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.173 3.174 3.173 3.174 3.175 3.174 3.173 3.174 3.173 3.174 3.175 3.174 3.175 3.174 3.175 1.190 9.194 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 1.433 TABLE 5 Nouresidential Real Property Mid-Mouth Convention Straight List39 Years (for assets placed in service ou or after May 13, 1993) Mouth Property Placed in Service Month 1 Mouch 2 Month 3 Mouth 4 Mouch 5 Mouth 6 Mouth Mouch 8 Mouth 9 Year 1 2.461% 2.0339% 1.519% 1.605% 1.391% 1.177% 0.963% 0.7499 Year 2-39 2.364 2.354 2.354 2.364 2.354 2.354 2.354 2.354 Year 40 0.107 0.321 0.335 0.749 0.963 1177 1391 1.603 1319 Mouch 10 0.535% 2.354 Month 11 0.321% 2.564 Mostk 12 0.1073 2.564 2.461 EXHIBIT 10-10 Automobile Depreciation Limits Recovery Year 1 2 2020* 10.100** 16.100 9,700 5.760 Year Placed in Service 2019 2018 10.100* 10,000* 16.100 16,000 9.700 9,600 5.760 5.760 2017 3,160* 5.100 3.050 1.875 3 4 and after *As of press date, the IRS had not released the 2020 limitations for automobiles, so throughout the chapter we use the same limitations as in 2019 for 2020. **$8,000 additional depreciation is allowed when bonus depreciation is claimed (9168(k) (2) (F)]. Karane Enterprises, a calendar-year manufacturer based in College Station, Texas, began business in 2019. In the process of setting up the business, Karane has acquired various types of assets. Below is a list of assets acquired during 2019: Asset Office furniture Machinery Used delivery truck* Cost $ 150,000 1,560,000 40,000 Date Placed in Service 02/03/2019 07/22/2019 08/17/2019 *Not considered a luxury automobile. During 2019, Karane was very successful and had no $179 limitations) and decided to acquire more assets in 2020 to increase its production capacity. These are the assets acquired during 2020: Asset Computers & info. system Luxury autot Assembly equipment Storage building Cost $ 400,000 80,000 1,200,000 700,000 Date Placed in Service 03/31/2020 05/26/2020 08/15/2020 11/13/2020 fUsed 100% for business purposes. Karane generated taxable income in 2020 of $1,732,500 for purposes of computing the $179 expense limitation. (Use MACRS Table 1, Table 2. Table 3, Table 4, Table 5, and Exhibit 10-10.) (Leave no answer blank. Enter zero if applicable. Input all the values as positive numbers.) a. Compute the maximum 2019 depreciation deductions, including $179 expense (ignoring bonus depreciation). Answer is complete but not entirely correct. Description Office furniture Machinery Delivery truck Total 2019 Cost Recovery Cost $179 Expense $ 150,000 $ $ 1,560,000 1,000,000 X 40,000 0 $ 1,750,000 $ 1,000,000 MACRS Current Total Cost MACRS Recovery Basis Depreciation Deduction 150,000 $ 21,435$ 21,435 560,000 80,024 X 1,080,024 40,000 8,000 8.000 750,000 $ 109,459 1,109,459 b. Compute the maximum 2020 depreciation deductions, including $179 expense (ignoring bonus depreciation). Answer is complete but not entirely correct. Description Cost Sec. 179 Expense MACRS Basis Current MACRS Depreciation Total Cost Recovery Deduction $ 2019 Assets Office furniture Machinery Used delivery truck 150,000 $ 1,560,000 40,000 0$ 0 0 150,000 $ 560,000 $ 40,000 21,435 X $ 80,024 X 8,000 21,435 80.024 8,000 2020 Assets Computers & Info. System Luxury Auto Assembly Equipment Storage Building 22,000 X 0 X 400,000 80,000 1,200,000 700,000 110,000 X 70,000 1,200,000 X 312,000 10.000 290,000 10,000 0 X 700,000 X 240,000 > 240,000 700,000 0 0 X Total 2020 Cost Recovery $ 4,130,000 $ 1,000,000 $ 2,130,000 $ 371,459 $ 1,371,459 c. Compute the maximum 2020 depreciation deductions, including $179 expense, but now assume that karane would like to take bonus depreciation. Answer is complete but not entirely correct. Description Cost Sec. 179 Expense Bonus MACRS Basis Current MACRS Depreciation Total Cost Recovery Deduction $ $ 2019 Assets Office Furniture Machinery Used Delivery Truck 150,000 1,560,000 0$ 0 0 0 0 0 X $ 195,000 X 15,000 X 0 47,756 47.756 X 4.800 X 40.000 4.800 40.000 X 40,000 X 7,500 X 7,500 X 1,500 X 9,000 2020 Assets Computers & Info System Luxury Auto Assembly Equipment Storage Building 80,000 1,200,000 700,000 0 1,200,000 0 8,000 0 X 0 72,000 0 700.000 3,160 x 0 2,247 11,160 1,200,000 2,247 Total 2020 Cost Recovery $ 3,770,000 $ 1,240,000 $ 15,500 $ 989,500 $ 59,463 $ 1,274,963 d. Now assume that during 2020, Karane decides to buy a competitor's assets for a purchase price of $1,350,000. Compute the maximum 2020 cost recovery, including $179 expense and bonus depreciation. Karane purchased the following assets for the lump- sum purchase price: (Round your final answers to the nearest whole dollar amount.) Asset Inventory Office furniture Machinery Patent Goodwill Building Land Cost $ 220,000 230,000 250,000 198,000 2,000 430,000 20,000 Date Placed in Service 09/15/2020 09/15/2020 09/15/2020 09/15/2020 09/15/2020 09/15/2020 09/15/2020 Description Cost Sec. 179 Expense Bonus MACRS Basis Current MACRS Depreciation Current Amortization Total Cost Recovery Deduction $ 2019 Assets Office Furniture Machinery Used Delivery Truck 0 0 0 2020 Assets Computers & Info System Luxury Auto Assembly Equipment Storage Building 0 0 0 0 0 Inventory Office Furniture Machinery Patent Goodwill Building Land 0 0 0 0 Totals 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 e. Complete Karane Enterprises's Form 4562 for part (b). (Input all values as positive numbers. Use 2020 tax rules regardless of year on tax form.) Do not skip rows when entering property under line item 26 of Form 4562. * Answer is not complete. Form 4562 PG Form 4562 PG 1 2 Form 4562 Page 1 and 2. OMB No. 1545-0172 2019 Attachment Sequence No. 179 Identifying number(xxx-xx-xxxx) Form 4562 Depreciation and Amortization (Including Information on Listed Property) Department of the Treasury Attach to your tax return. Internal Revenue Service (99) Go to www.irs.gov/Form4562 for instructions and the latest information. Name(s) shown on return Business or activity to which this form relates Karane Enterprises Part1 Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I. 1 Maximum amount (see instructions) 2 Total Cost of section 179 property placed in service (see instructions) 3 Threshold cost of section 179 property before reduction in limitation (see instructions) 4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter-O- 5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter-O-. If married filing separately, see instructions (b) Cost (business 6 (a) Description of property (c) Elected cost use only)) Assembly equipment 0 x 0 X 1 2 0 0 0 3 4 0 0 5 8 0 0 0 0 0 7 Listed property. Enter the amount from line 29 7 0 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 9 Tentative deduction. Enter the smaller of line 5 or line 8 9 9 10 Carryover of disallowed deduction from line 13 of your 2018 Form 4562 10 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5. see instructions 11 12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11 12 13 Carryover of disallowed deduction to 2020. Add lines 9 and 10, less line 12 13 0 Note: Do not use Part Il or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don't include listed property. see instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year. See instructions 14 15 Property subject to section 168(1)(1) election 15 16 Other depreciation (including ACRS) 16 0 0 0 nu MACDS ............... Part III MACRS Depreciation (Don't include listed property. See instructions.) Section A 17 MACRS deductions for assets placed in service in tax years beginning before 2019 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here 17 e) Convention (9) Depreciation deduction Section B-Assets Placed in Service During 2019 Tax Year Using the General Depreciation System (c) Basis for depreciation (a) Classification of property (b) Month and year (business/investment (d) Recovery period (e) Convention placed in service (1) Method use only-See instructions) 19a 3-year property 0 b 5-year property 0 x c7-year property 0 X 100% d 10-year property 0 e 15-year property 0 100% f 20-year property 0 100% 100% g 25-year property 0 25 yrs 100% S/L h Residential rental 0 0 MM S/L property 0 0 MM S/L i Nonresidential real 0 x MM S/L property 0 0 0 MM S/L Section C-Assets Placed in Service During 2019 Tax Year Using the Alternative Depreciation System 20a Class life 0 100% 100% S/L b 12-year 0 100% S/L C 30-year 0 0 30 yrs. MM S/L d 40-year 0 0 MM S/L Part IV (See Summary instructions) 21 Listed property. Enter amount from line 28 21 22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21. Enter here and on the appropriate lines of your return. Partnerships and Scorporationssee instructions 22 23 For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs 23 0 For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 12906N THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM IT SELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2020 McGraw-Hill Education. 0 0 X 0 X 0 0 0 0 0 0 0 X 0 27.5 yrs 27.5 yrs. 39 yrs. 0 0 12 yrs. 0 40 yrs. 0 0 X 0 x Form 4562 (2019) Page 2 Form 4562 (2019) Part V Listed Property (Include automobiles, certain other vehicles, certain aircraft, and property used for entertainment, recreation, or amusement.) Note: For any vehicle for which you are using the standard mileage rate or deducting lease expense, complete only 24a, 24b, columns (a) through (c) of Section A, all of Section B, and Section Cif applicable Section A-Depreciation and Other Information (Caution: See the instructions for limits for passenger automobiles.) 24a Do you have evidence to support the business/investment use claimed? Yes No 24b If "Yes," is the evidence written? (a) Type of (b) Date placed in (e) Basis for depreciation (1) (h) property (list service (d) Cost or (g) Business/investment (business/investment use other basis Recovery vehicles first) Depreciation (mm/dd/yyyy) Method/Convention use percentage only) period deduction Yes No ) Elected section 179 cost 25 Special depreciation allowance for qualified listed property placed in service during the tax year and used more than 50% in a 0 qualified business use. See instructions 25 26 Property used more than 50% in a qualified business use: 100% X 100% x 100% 100% X 100% x 100% X 100% X 0 0 100% 100% 100.00% 100% 100% 100% 100% 0 0 100% 100% 100.00% 100% 100% 100% 100% 0 0 27 Property used 50% or less in a qualified business use: 100% 100% 100.00% 100% 100% 100% S/L- L- 0 0 100% 100% 100.00% 100% 100% 100% S/L- 0 0 100% 100% 100.00% 100% 100% 100% S/L- 0 0 28 Add amounts in column (h), lines 25 through 27. Enter here and on line 21, page 1 28 0 29 Add amounts in column (1), line 26. Enter here and on line 7, page 1 29 0 Section B-Information on Use of Vehicles Complete this section for vehicles used by a sole proprietor, partner, or other "more than 5% owner," or related person. If you provided vehicles to your employees, first answer the questions in Section C to see if you meet an exception to completing this section for those vehicles. 30 Total business/investment miles driven during the year (don't include (a) Vehicle 1 (b) Vehicle 2 (c) Vehicle 3 (d) Vehicle 4 (e) Vehicle 5 (1) Vehicle 6 commuting miles) 0 0 0 0 0 0 31 Total commuting miles driven during the year 0 0 0 0 0 0 32 Total other personal (noncommuting) miles driven 0 0 0 0 0 0 33 Total miles driven during the year. Add lines 30 through 32 0 0 0 0 0 0 34 Was the vehicle available for personal use during Yes No Yes No Yes No Yes No Yes No Yes No off-duty hours? 35 Was the vehicle used primarily by a more than 5% owner or related person? O O 36 Is another vehicle available for personal use? OOL . OOH Section C-Questions for Employers Who Provide Vehicles for Use by Their Employees Answer these questions to determine if you meet an exception to completing Section B for vehicles used by employees who aren't more than 5% owners or related persons. see instructions. Yes No lo 37 Do you maintain a written policy statement that prohibits all personal use of vehicles, including commuting, by your employees? 38 Do you maintain a written policy statement that prohibits personal use of vehicles, except commuting, by your employees? See the instructions for vehicles used by corporate officers, directors, or 1% or more owners. , 1% . 39 Do you treat all use of vehicles by employees as personal use? 40 Do you provide more than five vehicles to your employees, obtain information from your employees about the use of the vehicles, and retain the information received? 41 Do you meet the requirements concerning qualified automobile demonstration use? See instructions. Note: If your answer to 37, 38, 39, 40, or 41 is "Yes," don't complete Section B for the covered vehicles. Part VI Amortization (b) Date (e) Amortization amortization (a) Description of costs (c) Amortizable amount (d) Code section begins period or (mm/dd/yyyy) percentage 42 Amortization of costs that begins during your 2019 tax year (see instructions) 100% 100% 100% 100% 100.00% 100% 100% 100% 100% 100.00% 43 Amortization of costs that began before your 2019 tax year. 44 Total. Add amounts in column (f). See the instructions for where to report. (1) Amortization for this year 0 0 0 43 44 Form 4562 (2019) THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2020 McGraw-Hill Education. 20-Year 3.750% 7.219 Table 1 MACRS Half-Year Convention Depreciation Rate for Recovery Period 3-Year 5-Year 7-Year 10-Year 15-Year Year 1 33.33% 20.00% 14.29% 10.00% 5.00% Year 2 44.45 32.00 24.49 18.00 9.50 Year 3 14.81 19.20 17.49 14.40 8.55 Year 4 7.41 11.52 12.49 11.52 7.70 Year 5 11.52 8.93 9.22 6.93 Year 6 5.76 8.92 7.37 6.23 Year 7 8.93 6.55 5.90 Year 8 4.46 6.55 5.90 6.677 6.177 5.713 5.285 4.888 4.522 Year 9 6.56 5.91 4.462 Year 10 6.55 5.90 Year 11 3.28 5.91 4.461 4.462 4.461 Year 12 5.90 Year 13 5.91 4.462 Year 14 5.90 4.461 4.462 Year 15 5.91 Year 16 2.95 4.461 Year 17 4.462 Year 18 4.461 Year 19 4.462 Year 20 4.461 Year 21 2.231 1. Year TABLE 2 MACRS Mid-Quarter Couveuties: For properly placed in service during the first quarter Depreciation Rate for Recovery Period S-Year Year 1 35.00% 25.00% Year 2 26.00 Year 3 15.60 13.31 Year 4 11.01 10.93 Years 11.01 Year 6 1.35 8.74 Year 7 5.73 Years 1.09 TABLE 25 MACRS AGA-Quarter Convention: For property placed in serice during the ate quente Depreciation Rate for Recovery Period 5-Year 1-Year Year 1 17.53% Year 2 30.00 Year 3 18.00 16.76 Year 4 11.37 11.97 Year 5 11.37 Year 3.57 Year 7 Years TABLE 2 MACRS Mid-Quarter Convention: For gropery placed in serie during the bird quarter Depreciation Rate for Recovery Period 5-Year 7-Year Year 1 15.00% 10.7136 Year 2 34.00 25.51 20.40 18.22 Year 4 12.24 13.02 Years 11.30 9.30 Year 6 7.06 8.85 Year 7 8.86 Years 5.33 TABLE 2d MACRS-Mid Quarter Conventiou: For property placed is crice during the fourth quarter Depreciation Rate for Recovery Period 5-Year 7-Year Year 1 5.00% 3.5796 Year 2 38.00 27.55 Year 3 22.80 19.68 Year 4 13.68 14.06 Years 10.94 10.04 Year 6 9.58 8.73 Year 7 8.73 Year 3 7.64 Month 9 Month 8 1.364% 1.061 3.636 3.636 3.636 3.637 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 Month 10 Month 11 Month 12 0.758% 0.455% 0.152 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.636 3.636 3.636 3.637 3.637 3.637 3.636 3.636 3.636 3.637 3.637 3.637 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 TABLE 3 Residential Rental Property Mid-Month Convention Straight Line27.5 Years Month Property Placed in Service Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Year 1 3.485% 3.182% 2.879% 2.576% 2.273% 1.970% 1.667% Year 2-9 3.636 3.636 3.636 3.636 3.636 3.636 3.636 Year 10 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 11 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 12 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 13 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 14 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 15 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 16 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 17 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 18 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 19 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 20 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 21 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 22 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 23 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 24 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 25 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 26 3.637 3.637 3.637 3.637 3.637 3.637 3.636 Year 27 3.636 3.636 3.636 3.636 3.636 3.636 3.637 Year 28 1.97 2.273 2.576 2.879 3.182 3.485 3.636 Year 29 0.152 3.636 3.636 3.637 3.637 3.636 3.636 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.637 3.636 3.636 3.637 3.637 3.637 3.636 3.637 3.637 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 1.667 0.455 0.758 1.061 1.364 Mouth 12 0.1329 3.173 3.173 3.175 3.174 3.175 3.174 3.175 3.174 3.173 TABLE 4 Nouresidential Real Property Mid-Month Contentios Straight List315 Years (for assets placed in service before May 13, 1993) Mouth Property Placed in Service Mosch 1 Mouch 2 Mouch 3 Mouth 4 Months Mouch 6 Mouch 7 Mouch 8 Mouch 9 Year 1 3.0429 2.775% 2915% 1.934% 1.720% 1.190% 0.926% Year 2-7 3.173 3.175 3.175 3.173 3.173 3.175 3.173 3.173 3.173 Years 3.173 3.173 3.174 3.174 3.173 3.175 Year 9 3.174 3.173 3.174 3.173 3.173 3.173 Year 10 3.173 3.174 3.173 3.174 3.175 3.174 3.173 3.174 3.173 Year 11 3.175 3.174 3.173 3.174 3.173 3.174 3.175 3.174 Year 12 3.173 3.173 3.173 3.174 3.173 3.174 3.175 Year 13 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.174 Year 14 3.173 3.174 3.173 3.173 3.173 3.173 Year 15 3.174 3.173 3.174 3.173 3.175 3.174 3.173 3.174 Year 16 3.173 3.174 3.174 3.173 3.174 3.173 3114 Year 17 3.174 3.173 3.173 3.173 3.174 3.179 Year 15 3.173 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.173 Year 19 3.174 3.173 3.174 3.175 3.174 3.173 3.174 3.173 3.174 Year 20 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.173 Year 21 3.174 3.173 3.174 3.173 3.173 3.174 3.173 3.174 Year 22 3.173 3.174 3.173 3.174 3.173 3.173 3.174 3.173 Year 23 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.113 3.174 Year 24 3.173 3.174 3.175 3.174 3.175 3.174 3.173 3.175 Year 25 3.174 3.173 3.174 3.175 3.174 3.173 3.174 3.173 3.174 Year 26 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 Year 27 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 Year 25 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.173 Year 29 3.174 3.173 3.174 3.173 3.173 3.174 3.173 3.174 Year 30 3.173 3.174 3.173 3.174 3.173 3.173 3.173 Year 31 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 Year 32 1.720 1.954 2313 3.173 3.174 3.173 Year 33 0.132 0.397 0.661 Mouch 10 0.661% 3.173 3.173 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.173 3.174 3.175 3.174 3.173 3.174 3.173 3.174 3.173 3.174 0.925 Month 11 0.397% 3.175 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.173 3.174 3.173 3.174 3.175 3.174 3.173 3.174 3.173 3.174 3.175 3.174 3.175 3.174 3.175 1.190 9.194 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 1.433 TABLE 5 Nouresidential Real Property Mid-Mouth Convention Straight List39 Years (for assets placed in service ou or after May 13, 1993) Mouth Property Placed in Service Month 1 Mouch 2 Month 3 Mouth 4 Mouch 5 Mouth 6 Mouth Mouch 8 Mouth 9 Year 1 2.461% 2.0339% 1.519% 1.605% 1.391% 1.177% 0.963% 0.7499 Year 2-39 2.364 2.354 2.354 2.364 2.354 2.354 2.354 2.354 Year 40 0.107 0.321 0.335 0.749 0.963 1177 1391 1.603 1319 Mouch 10 0.535% 2.354 Month 11 0.321% 2.564 Mostk 12 0.1073 2.564 2.461 EXHIBIT 10-10 Automobile Depreciation Limits Recovery Year 1 2 2020* 10.100** 16.100 9,700 5.760 Year Placed in Service 2019 2018 10.100* 10,000* 16.100 16,000 9.700 9,600 5.760 5.760 2017 3,160* 5.100 3.050 1.875 3 4 and after *As of press date, the IRS had not released the 2020 limitations for automobiles, so throughout the chapter we use the same limitations as in 2019 for 2020. **$8,000 additional depreciation is allowed when bonus depreciation is claimed (9168(k) (2) (F)]
