- What is Terrell’s maximum Section 179 deduction in 2007? Explain.
Because Terrell acquired over $450,000 of qualifying Section 179 property, the annual investment limit applies. The $112,000 annual deduction is reduced dollar for dollar by the amount of the investment in qualifying property in excess of $450,000. Terrell’s Section 179 deduction is reduced by $38,000 ($488,000 – $450,000) and its Section 179 deduction is limited to $74,000 ($112,000 – $38,000). The taxable income limit does not affect the amount of the 2007 Section 179 deduction because the $80,000 taxable income exceeds the $74,000 maximum election to expense.
- What is the depreciable basis of the equipment?
The depreciable basis of the equipment is $414,000 ($488,000 – $74,000). The acquisition cost of the equipment is reduced by the amount of the Section 179 election for the current year.
