Problem 5-42 (Algorithmic) (LO.7) On April 20, 2018, Javier Sanchez purchased and placed in service a new 7-year class asset costing $364,400 for use in his landscaping business, which he operates as a single member LLC (Sanchez Landscaping LLC). Rather than using bonus depreciation, Javier would like to use $ 179 to expense $200,000 of this asset and then use regular MACRS to cost recover the remaining cost. During 2018, his business generated net income of $437,280 before any 5 179 immediate expense election. If required round your intermediate computations and final answers to the nearest dollar. Click here to access the depreciation table to use for this problem. a. Determine the cost recovery deductions (including first year additional depreciation) that Javier Sanchez can claim with respect to this asset in 2018 and 2019. Total cost recovery deduction in 2018: $ Total cost recovery deduction in 2019: $L b. Complete Javier's Form 4562 (page 1) for 2018. Note: For 2018, the maximum $ 179 is $1,000,000 and the threshold amount is $2,500,000. If an amount is zero, enter "o". Enter amounts as positive numbers. OMB No. 1545-0172 Form 4562 2018 Department of the Treasury Internal Revenue Service (99) Depreciation and Amortization (Including Information on Listed Property) Attach to your tax return. Information about Form 4562 and its separate instructions is at www.irs.gov/form4562. Attachment Sequence No. 179 Name(s) shown on return Javier Sanchez Business or activity to which this form relates Sanchez Landscaping, LLC Identifying number 123-45-6789 Part I 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 -0-.......... 5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter-O-. If married filing separately, see instructions (a) Description of property (b) Cost (business use only) (c) Elected cost Landscaping equipment 7 Listed property. Enter the amount from line 29.......... 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...... 10 Carryover of disallowed deduction from line 13 of your 2017 Form 4562............... 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5 see instructions)...... 12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11 ..... ............... 13 Carryover of disallowed deduction to 2019. Add lines 9 and 10, less line 12.... 13 Note: Don't use Part II 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) ........... 15 Property subject to section 168(F) (1) election ..... 16 Other depreciation (including ACRS) .............. ..................... 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 2018........ 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 Section B-Assets placed in Service During 2018 Tax Year Using the General Depreciation System (b) Month and (c) Basis for depreciation (a) Classification of year placed in business/investment use only. Recovery (e) Convention (f) Method property service see instructions) period (d) (9) Depreciation deduction 19a 3-year property b 5-year property c7-year property d 10-year property e 15-year property f 20-year property g 25-year property h Residential rental 25 yrs. 27.5 yrs. MM property MM 27.5 yrs. 39 yrs. i Nonresidential real MM property MM Section C-Assets placed in Service During 2018 Tax Year Using the Alternative Depreciation System MM 20a Class life b 12-year 12 yrs. c 30-year 30 yrs. d 40-year 40 yrs. Part IV Summary (See instructions.) 21 Listed property. Enter amount from line 28 ..... 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 S corporations-see instructions ....... 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 Problem 5-42 (Algorithmic) (LO.7) On April 20, 2018, Javier Sanchez purchased and placed in service a new 7-year class asset costing $364,400 for use in his landscaping business, which he operates as a single member LLC (Sanchez Landscaping LLC). Rather than using bonus depreciation, Javier would like to use $ 179 to expense $200,000 of this asset and then use regular MACRS to cost recover the remaining cost. During 2018, his business generated net income of $437,280 before any 5 179 immediate expense election. If required round your intermediate computations and final answers to the nearest dollar. Click here to access the depreciation table to use for this problem. a. Determine the cost recovery deductions (including first year additional depreciation) that Javier Sanchez can claim with respect to this asset in 2018 and 2019. Total cost recovery deduction in 2018: $ Total cost recovery deduction in 2019: $L b. Complete Javier's Form 4562 (page 1) for 2018. Note: For 2018, the maximum $ 179 is $1,000,000 and the threshold amount is $2,500,000. If an amount is zero, enter "o". Enter amounts as positive numbers. OMB No. 1545-0172 Form 4562 2018 Department of the Treasury Internal Revenue Service (99) Depreciation and Amortization (Including Information on Listed Property) Attach to your tax return. Information about Form 4562 and its separate instructions is at www.irs.gov/form4562. Attachment Sequence No. 179 Name(s) shown on return Javier Sanchez Business or activity to which this form relates Sanchez Landscaping, LLC Identifying number 123-45-6789 Part I 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 -0-.......... 5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter-O-. If married filing separately, see instructions (a) Description of property (b) Cost (business use only) (c) Elected cost Landscaping equipment 7 Listed property. Enter the amount from line 29.......... 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...... 10 Carryover of disallowed deduction from line 13 of your 2017 Form 4562............... 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5 see instructions)...... 12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11 ..... ............... 13 Carryover of disallowed deduction to 2019. Add lines 9 and 10, less line 12.... 13 Note: Don't use Part II 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) ........... 15 Property subject to section 168(F) (1) election ..... 16 Other depreciation (including ACRS) .............. ..................... 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 2018........ 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 Section B-Assets placed in Service During 2018 Tax Year Using the General Depreciation System (b) Month and (c) Basis for depreciation (a) Classification of year placed in business/investment use only. Recovery (e) Convention (f) Method property service see instructions) period (d) (9) Depreciation deduction 19a 3-year property b 5-year property c7-year property d 10-year property e 15-year property f 20-year property g 25-year property h Residential rental 25 yrs. 27.5 yrs. MM property MM 27.5 yrs. 39 yrs. i Nonresidential real MM property MM Section C-Assets placed in Service During 2018 Tax Year Using the Alternative Depreciation System MM 20a Class life b 12-year 12 yrs. c 30-year 30 yrs. d 40-year 40 yrs. Part IV Summary (See instructions.) 21 Listed property. Enter amount from line 28 ..... 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 S corporations-see instructions ....... 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