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Problem 4-A

# Problem 4-A - Problem Set#4 with answers 1 Gina places...

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Problem Set #4, with answers 1. Gina places \$40,000 of equipment in service in 2009. (Ignore the Section 179 election.) (a) Using the percentages from the handout, what’s her depreciation deduction for 2009? (b) 2010? (c) If she sells it for \$25,000 in 2011, what’s her depreciation in 2011, and what’s her gain or loss on the sale? Ans: 2009: \$40,000 x 14.29% = \$5,714 2010: \$40,000 x 24.49% = \$9,796 2011: \$40,000 x 17.49% = \$6,996 divided by 2 since it was sold = \$3,498. You subtract all of the depreciation deductions from the original cost to get the basis: \$40,000 - \$19,008 = \$20,992 Gain on sale: \$25,000 - 20,992 = 4,008 2. Maxine places \$600,000 of equipment in service in 2010. If she makes the maximum Section 179 election, what’s her total deduction for the year? (Hint: You will be adding two numbers together to get the answer.) Ans: \$500,000 (section 179 allowance) + \$100,000 x 14.29% = 14,290, for a total of \$514,290. 3. Bonnie places \$2,230,000 of equipment in service in 2010. What’s the maximum Section 179 election available to her? Ans: Since this is over the \$2,000,000 phase-out threshold by \$230,000, the \$500,000 expense allowance maximum is reduced from 500,000 to \$270,000 (\$500,000 minus \$230,000 = \$270,000). 4. Ernesto places in service on March 1, 2009, a warehouse that cost \$2,000,000, with \$291,800 of that cost representing the cost of the land. What’s his depreciation deduction for 2009? 2010? If he sells it on July 30, 2011, what’s his deduction for 2011?

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