Question

Rex's Wrecks purchased $1,251,000 in new equipment during 2019. Rex wants to use Section 179 to expense the maximum amount of the purchase. If Rex is not using bonus depreciation, how much will Rex get to expense under Section 179 and what will be the adjusted basis of the assets for calculating MACRS depreciation expense?

A. Section 179-$1,020,000; adjusted basis subject to MACRS-$231,000
B. Section 179-$1,251,000; adjusted basis subject to MACRS-$0
C. Section 179-$231,000; adjusted basis subject to MACRS-$1,020,000
D. The maximum Sec. 179 deduction is $1,020,000. The basis of the asset is reduced by the Sec. 179 amount before applying MACRS or S/L depreciation rates.
E. Section 179-$1,000,000; adjusted basis subject to MACRS-$251,000.

Answer 1

Rex's Wrecks can expense $1,020,000 under Section 179 and the adjusted basis for MACRS depreciation is $231,000.

Step-by-step explanation:

To determine the amount that Rex's Wrecks can expense under Section 179, we need to know the maximum deduction limit for the given tax year. As of 2019, the maximum Section 179 deduction was $1,020,000. Since Rex wants to expense the maximum amount, he can deduct $1,020,000 from the equipment purchase.

The adjusted basis of the assets for calculating MACRS depreciation expense is calculated by subtracting the Section 179 deduction from the total purchase cost. In this case, the adjusted basis would be $1,251,000 - $1,020,000 = $231,000.

Therefore, the correct answer is:

Section 179: $1,020,000

Adjusted basis subject to MACRS: $231,000