Lori, who is single, purchased $5-$year class property for $$200,000$ and $7-$year class property for $$420,000$ on May $20,2022.$ 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 $8\mathrm{.}1$ and the depreciation table to use for this problem.

If an amount is zero, enter $"0".$

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a$.$ Determine Lori's total cost recovery deduction if the $179$ expense is first taken with respect to the $5-$year class asset.

$5-$year class property

Immediate expense deduction under $179$ $fill in the blank $879$d$64$ff$8$fbefef$\_1$

$200,000$

Regular MACRS fill in the blank $879$d$64$ff$8$fbefef$\_2$

$0$

$7-$year class property

Immediate expense deduction under $179$ $fill in the blank $879$d$64$ff$8$fbefef$\_3$

$320,000$

Regular MACRS fill in the blank $879$d$64$ff$8$fbefef$\_4$

$14,290$

Total deduction $fill in the blank $879$d$64$ff$8$fbefef$\_5$

$534,290$

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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 $($real property$)$ and personalty $($personal property$).$ Write$-$offs are not available for land because it does not have a determinable useful life. Cost recovery allowances for real property, other than land, are based on recovery lives specified in the law. Section $179($Election to Expense Certain Depreciable Business Assets$)$ permits the taxpayer to elect to write off up to part of the acquisition cost of tangible personal property used in a trade or business.

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b$.$ Determine Lori's total cost recovery deduction if the $179$ expense is first taken with respect to the $7-$year class asset.

$7-$year class property

Immediate expense deduction under $179$ $fill in the blank be$88030$b$9023$f$8$b$\_1$

$420,000$

Regular MACRS fill in the blank be$88030$b$9023$f$8$b$\_2$

$0$

$5-$year class property

Immediate expense deduction under $179$ $fill in the blank be$88030$b$9023$f$8$b$\_3$

$100,000$

Regular MACRS fill in the blank be$88030$b$9023$f$8$b$\_4$

$20,000$

Total deduction $fill in the blank be$88030$b$9023$f$8$b$\_5$

$540,000$

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c$.$ What is your advice to Lori?

If $179$ expense is first allocated to the

seven$-$year

the cost recovery deduction for the year would be $fill in the blank $8$acb$68008$fe$2052\_2$

$5,710$

larger.

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Correct

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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

$20221\mathrm{.}00020260\mathrm{.}7921$

$20230\mathrm{.}943420270\mathrm{.}7473$

$20240\mathrm{.}890020280\mathrm{.}7050$

$20250\mathrm{.}839620290\mathrm{.}6651$

Round each present value computation to the nearest dollar.

The present value of the tax savings from the cost recovery deductions for both assets $fill in the blank a$7$c$53$cf$38$f$86$ffe$\_1$

$130,521$

$.$

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Incorrect

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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 $fill in the blank c$6735$afeafce$040\_1$

$15,997$

$.$

Lori should elect to expense the

$7-$year

asset.