Willie T. Kirk is currently in the business of manufacturing wooden crates. He is interested in purchasing some additional crate making equipment and is asking you, as his CPA, what is the best answer for tax purposes with respect to generating the lowest possible taxable income for the year of purchase. The total purchase amount is expected to be $1,975,000. Required: Using all potential depreciation related deductions, determine how much depreciation Willie can take for the year of the purchase AND the year following the year of purchase under each of the following situations. Presume that the crate making equipment falls in the 7 year life for MACRS. Show each of your calculations and explain your conclusions.

a. The equipment is purchased and placed in service during the first month of 2010.

b. The equipment is purchased and placed in service in June 2009.

c. The equipment is purchased and placed in service in October 2010.

Willie (same Willie as question 7) has grown tired of the crate making business and decides in 2016 to sell all of his equipment that he bought in questions a, b and c of question 7. He engages an equipment broker to sell the equipment for a commission of 4% of the sales price. After 6 months of work, the broker has sold all of the equipment to a single buyer for a gross sales price of $2,195,000. Using your answers to parts a, b and c in question 7, determine how much gain or loss, if any, Willie must recognize in 2016, explain whether the gain or loss is capital or ordinary and explain under what code section you made your conclusions.

a.

b.

c.