Question

McKenzie purchased qualifying equipment for his business that cost $212,000 in 2022 . The taxable income of the business for the year is $5,600 before consideration of any §.179 deduction. If an amount is zero, enter "0". a. Calculate McKenzie's §179 expense deduction for 2022 and any carryover to 2023. 5179 expense deduction for 2022: 5 \$ 179 carryover to 2023:\$ b. How would your answer change if McKenzie decided to use additional first-year (bonus) depreciation on the equipment instead of using 5. 179 expensing? Hint: See Concept Summary 8.3. 5179 expense deduction for 2022: \$ 5179 carryover to 2023: \$

Answer 1

McKenzie can claim a §179 expense deduction of $5,600 for 2022, with a carryover of $206,400 to 2023. If opting for bonus depreciation, McKenzie could deduct the entire $212,000 in 2022 with no carryover to 2023.

Step-by-step explanation:

The §179 expense deduction is a tax provision that allows businesses to deduct the cost of certain types of property on their income taxes as an expense, rather than requiring the cost to be capitalized and depreciated.

For 2022, the maximum §179 deduction a business could take was $1,080,000, and it began to phase out on a dollar-for-dollar basis for amounts spent over $2,700,000. Given McKenzie's equipment purchase of $212,000 and business taxable income of $5,600, the §179 deduction is limited to their taxable income, which is $5,600.

Therefore, the §179 expense deduction for 2022 would be $5,600, and the carryover to 2023 would be $212,000 - $5,600 = $206,400.

If McKenzie opts for bonus depreciation, which is often 100% for qualifying property placed in service during the relevant tax year, then the entire cost of the equipment could potentially be deducted in the year it was purchased. This would mean that McKenzie would claim a bonus depreciation of $212,000 in 2022 if the business qualifies, leaving no carryover for 2023.