39. LO.7 Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $420,000 on May 20, 2021. 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 firstyear depreciation.

a. Determine Lori’s total deduction if the § 179 expense is first taken with respect to the 5-year class asset.

b. Determine Lori’s total deduction if the § 179 expense is first taken with respect to the 7-year class asset.

c. What is your advice to Lori?

d. Assume that Lori is in the 24% marginal tax bracket and that she elects § 179 on the 7-year asset. Determine the present value of the tax savings from the cost recovery deductions for both assets. See Appendix E for present value factors, and assume a 6% discount rate. Round all calculations to the nearest dollar.

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.