Modified Accelerated Cost Recovery System (MACRS), Election to Expense, Listed Property, Limitation on Depreciation of Luxury Automobiles (LO 7.4, 7.5, 7.6, 7.7)

During 2016, William purchases the following capital assets for use in his catering business:

New passenger automobile (September 30)	$47,200
Baking equipment (June 30)	14,160

Assume that William decides to use the election to expense on the baking equipment (and has adequate taxable income to cover the deduction) but not on the automobile (which has a 5-year recovery period), and he also uses the MACRS accelerated method to calculate depreciation but elects out of bonus depreciation. Assume he has adequate taxable income.

Click here to access the depreciation table and click here to access the annual automobile depreciation limitations.

Calculate William's maximum depreciation deduction for 2016, assuming he uses the automobile 100 percent in his business.

Modified Accelerated Cost Recovery System (MACRS) (LO 7.4)

Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2016. The truck is not considered a passenger automobile for purposes of the listed property and luxury automobile limitations. The truck has a depreciable basis of $39,080 and an estimated useful life of 5 years. Assume half-year convention for tax.

Click here to access the depreciation tables.

a. Calculate the amount of depreciation for 2016 using financial accounting straight-line depreciation (not the straight-line MACRS election) over the truck's estimated useful life.

Round the per month rate to two decimal places and round your final answer to the nearest dollar. $

b. Calculate the amount of depreciation for 2016 using the straight-line depreciation election, using MACRS tables over the minimum number of years with no bonus depreciation or election to expense. $

c. Calculate the amount of depreciation for 2016, including bonus depreciation but no election to expense, that Mike could deduct using the MACRS tables. $

d. Assume no income limit on the expense election. Calculate the amount of depreciation for 2016 including bonus depreciation and the election to expense that Mike can deduct. $

Modified Accelerated Cost Recovery System (MACRS), Listed Property, Limitation on Depreciation of Luxury Automobiles (LO 7.4, 7.6, 7.7)

On September 14, 2016, Jay purchased a passenger automobile that is used 75 percent in his accounting business. The automobile has a basis for depreciation purposes of $43,000, and Jay uses the accelerated method under MACRS. Jay does not elect to expense under section 179.

Click here to access the depreciation table and click here to access the annual automobile depreciation limitations.

a. Calculate Jay's depreciation deduction for 2016 assuming bonus depreciation. $

b. Assuming the same business percentage (75 percent) in 2017, calculate Jay's depreciation deduction for 2017. $

Tom has a successful business with $100,000 of taxable income before the election to expense in 2016. He purchases one new asset in 2016, a new machine which is 7-year MACRS property and costs $25,000.

You are Tom's tax advisor. Complete the memorandum regarding the options you would advise for Tom and the treatment of this machine for tax purposes in 2016.

Click here to access the depreciation table.

If required, round your final answers to the nearest dollar.

Memorandum

To: Tom Businessman From: Tax Advisor

One option is to utilize which, by election, allows a taxpayer to expense $ of the cost of the machine in 2016. If this election is not made, a deduction of $ would be allowed. Bottom line, I would recommend the over the to maximize your tax benefit in 2016.