Final answer:
The maximum depreciation expense for Crouch LLC, including Section 179 expensing and assuming no bonus expensing, for the first year is $742,930 by combining $500,000 of Section 179 expensing and $242,930 of MACRS depreciation.
Step-by-step explanation:
To calculate the maximum depreciation expense for Crouch LLC's machinery and equipment, we need to use the Modified Accelerated Cost Recovery System (MACRS) for a 7-year property and consider the section 179 expensing rules that were extended to 2014.
Under Section 179, businesses could expense up to $500,000 of qualifying property in 2013. For the sake of this problem, we're assuming this limit was extended to 2014. The full purchase price of $2,200,000 exceeds this limit, so let's apply it fully. First, we deduct the $500,000 immediately under section 179. This leaves $1,700,000 to be depreciated under MACRS.
Since the equipment was placed into service in May, we'll need to use the half-year convention for depreciation calculations. For 7-year property, MACRS prescribes a first-year depreciation rate of 14.29%. So, the depreciation expense for the remaining $1,700,000 is 14.29% of that amount, which is $242,930.
Adding the two figures:
- Section 179 expense: $500,000
- MACRS first-year depreciation: $242,930
The total maximum depreciation expense for the first year is $742,930.