Question

In 2014, Gail had a § 179 deduction carryover of $10,000. In 2015, she elected § 179 for an asset acquired at a cost of $21,000. Gail's § 179 business income limitation for 2015 is $50,000. Determine Gail's § 179 deduction for 2015.

1) $25,000
2) $50,000
3) $31,000
4) $21,000
5) None of these choices are correct.

Answer 1

Gail can fully deduct the cost of the new asset ($21,000) and use the carryover ($10,000) for a total § 179 deduction of $31,000 in 2015, limited by her business income of $50,000.

Step-by-step explanation:

The student is asking about § 179 deduction, which pertains to the immediate expensing of business assets. In 2014, Gail had a $10,000 § 179 deduction carryover. In the subsequent year, she elected § 179 for an asset acquired at a cost of $21,000. Given Gail's § 179 business income limitation for 2015 is $50,000, we must determine Gail's § 179 deduction for that year.

According to the § 179 deduction rules, the total amount deducted under § 179 cannot exceed the taxpayer's business income. Since Gail's business income is $50,000 and her § 179 asset cost is $21,000, which is less than her business income, she can deduct the full cost of the asset. Additionally, Gail can use the carryover from 2014 which is $10,000 to further reduce her taxable business income, but only up to the business income limit.

Therefore, Gail's total § 179 deduction for 2015 will be the full cost of the new asset ($21,000) plus the carryover from the previous year ($10,000). However, since the total deduction for the § 179 cannot exceed her business income for the year, it's capped at her business income of $50,000. In conclusion, Gail's § 179 deduction for 2015 is $31,000 (which falls under option 3).

Answer 2

Gail's § 179 deduction for 2015 is the sum of the carryover from 2014 and the cost of the new asset acquired in 2015, totaling $31,000. This assumes her business income is sufficient to cover the deduction, which it is, since it is $50,000. The correct answer is option 3.

Step-by-step explanation:

The question involves calculating Gail's § 179 deduction for the year 2015. The § 179 deduction allows taxpayers to deduct the cost of certain property as an expense when the property is placed in service. The deduction is limited to the taxpayer's business income, and any excess deduction can be carried over to the following year.

Gail had a § 179 deduction carryover of $10,000 from 2014. In 2015, she acquired an asset costing $21,000 and elected to take the § 179 deduction on this asset. Given that her business income limitation for 2015 is $50,000, we can calculate her § 179 deduction for 2015. Since her business income is more than the total potential deduction amount (carryover + current year asset cost), she can fully deduct both the carryover amount and the cost of the new asset.

Therefore, Gail's § 179 deduction for 2015 would be the sum of her carryover and the cost of the new asset: $10,000 (carryover) + $21,000 (new asset cost) = $31,000.

The correct option is (3) $31,000.