On April 5, 2020, Javier Sanchez purchased and placed in service a new 7-year class asset...

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On April 5, 2020, Javier Sanchez purchased and placed in service a new 7-year class asset costing $340,400 for use in his landscaping business, which he operates as a single member LLC (Sanchez Landscaping LLC). Rather than using bonus depreciation, Javier would like to use § 179 to expense $200,000 of this asset and then use regular MACRS to cost recover the remaining cost. During 2020, his business generated a net income of $408,480 before any § 179 immediate expense election. If required round your intermediate computations and final answers to the nearest dollar. Click here to access the depreciation table to use for this problem. a. Determine the cost recovery deductions (including first year additional depreciation) that Javier Sanchez can claim with respect to this asset in 2020 and 2021. Total cost recovery deduction in 2020: Total cost recovery deduction in 2021: $ b. Complete Javier's Form 4562 (page 1) for 2020. Note: For 2020, the maximum § 179 is $1,040,000 and the threshold amount is $2,590,000. If an amount is zero, enter "0". Enter amounts as positive numbers. Form 4562 Department of the Treasury Internal Revenue Service (99) Name(s) shown on return Javier Sanchez Part I 1 2 Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I. Maximum amount (see instructions) Total cost of section 179 property placed in service (see instructions) 3 Threshold cost of section 179 property before reduction in limitation (see instructions) 220,063 ✔ 34,203 X 6 Depreciation and Amortization (Including Information on Listed Property) ▸ Attach to your tax return. ► Go to www.irs.gov/Form4562 for instructions and the latest information. 4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0- Business or activity to which this form relates Sanchez Landscaping, LLC 5 Dollar limitation for tax year. Subtract line from line 1. If zero or less, enter -0-. If married filing separately, see instructions. 7 Landscaping equipment (a) Description of property (b) Cost (business use only) 340,400 ✓ Listed property. Enter the amount from line 29 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 7 (c) Elected cost 200,000 ✓ 1 Identifying number 2 3 4 OMB No. 1545-0172 123-45-6789 2020 8 Attachment Sequence No. 179 220,063 X 340,400 2,500,000 0 200,000 X ✓ X 9 Tentative deduction. Enter the smaller of line 5 or line 8 10 Carryover of disallowed deduction from line 13 of your 2019 Form 4562 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5 (see instructions) 12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11 13 Carryover of disallowed deduction to 2021. Add lines 9 and 10, less line 12 .... Note: Don't use Part II or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don't include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year (see instructions) ..... 15 Property subject to section 168(f)(1) election 16 Other depreciation (including ACRS). Part III ... MACRS Depreciation (Don't include listed property. See instructions.) Section A (a) Classification of property 19a 3-year property b 5-year property c 7-year property 17 MACRS deductions for assets placed in service in tax years beginning before 2020 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here ► a d 10-year property e 15-year property f 20-year property g 25-year property h Residential rental property property i Nonresidential real instructions) (d) Recovery period 7 yrs. 25 yrs. 27.5 yrs. 27.5 yrs. 39 yrs. 13 Section B-Assets Placed in Service During 2020 Tax Year Using the General Depreciation System (b) Month and year placed in service (c) Basis for depreciation (business/investment use only-see 12 yrs. 30 yrs. 40 yrs. (e) Convention 23 For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs... For Paperwork Reduction Act Notice, see separate instructions. HY ✔ MM MM Cat. No. 12906N MM S/L S/L S/L S/L S/L Section C-Assets Placed in Service During 2020 Tax Year Using the Alternative Depreciation System S/L S/L S/L S/L MM 20a Class life b 12-year c 30-year d 40-year Part IV Summary (See instructions.) 21 Listed property. Enter amount from line 28... 22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21. Enter here and on the appropriate lines of your return. Partnerships and S corporations-see instructions.. IMM MM 9 10 23 11 12 0 ✓ 14 15 16 17 (f) Method DDB ✔ 21 22 200,000 ✓ 0 ✓ 0 X 0 X (g) Depreciation deduction Form 4562 (2020) Exhibit 8.4 MACRS Accelerated Depreciation for Personal Property Assuming Mid-Quarter Convention (Percentage Rates) For Property Placed in Service after December 31, 1986 (Partial Table *) 3-Year Recovery Year First Quarter Second Quarter Third Quarter Fourth Quarter 58.33 27.78 1 2 Recovery Year 1 2 Recovery Year First Quarter 1 First Quarter 35.00 26.00 2 25.00 21.43 41.67 38.89 5-Year Second Quarter 25.00 30.00 7-Year Second Quarter 17.85 23.47 25.00 50.00 Third Quarter Fourth Quarter 5.00 38.00 15.00 34.00 8.33 61.11 Third Quarter Fourth Quarter 3.57 27.55 10.71 25.51 On April 5, 2020, Javier Sanchez purchased and placed in service a new 7-year class asset costing $340,400 for use in his landscaping business, which he operates as a single member LLC (Sanchez Landscaping LLC). Rather than using bonus depreciation, Javier would like to use § 179 to expense $200,000 of this asset and then use regular MACRS to cost recover the remaining cost. During 2020, his business generated a net income of $408,480 before any § 179 immediate expense election. If required round your intermediate computations and final answers to the nearest dollar. Click here to access the depreciation table to use for this problem. a. Determine the cost recovery deductions (including first year additional depreciation) that Javier Sanchez can claim with respect to this asset in 2020 and 2021. Total cost recovery deduction in 2020: Total cost recovery deduction in 2021: $ b. Complete Javier's Form 4562 (page 1) for 2020. Note: For 2020, the maximum § 179 is $1,040,000 and the threshold amount is $2,590,000. If an amount is zero, enter "0". Enter amounts as positive numbers. Form 4562 Department of the Treasury Internal Revenue Service (99) Name(s) shown on return Javier Sanchez Part I 1 2 Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I. Maximum amount (see instructions) Total cost of section 179 property placed in service (see instructions) 3 Threshold cost of section 179 property before reduction in limitation (see instructions) 220,063 ✔ 34,203 X 6 Depreciation and Amortization (Including Information on Listed Property) ▸ Attach to your tax return. ► Go to www.irs.gov/Form4562 for instructions and the latest information. 4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0- Business or activity to which this form relates Sanchez Landscaping, LLC 5 Dollar limitation for tax year. Subtract line from line 1. If zero or less, enter -0-. If married filing separately, see instructions. 7 Landscaping equipment (a) Description of property (b) Cost (business use only) 340,400 ✓ Listed property. Enter the amount from line 29 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 7 (c) Elected cost 200,000 ✓ 1 Identifying number 2 3 4 OMB No. 1545-0172 123-45-6789 2020 8 Attachment Sequence No. 179 220,063 X 340,400 2,500,000 0 200,000 X ✓ X 9 Tentative deduction. Enter the smaller of line 5 or line 8 10 Carryover of disallowed deduction from line 13 of your 2019 Form 4562 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5 (see instructions) 12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11 13 Carryover of disallowed deduction to 2021. Add lines 9 and 10, less line 12 .... Note: Don't use Part II or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don't include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year (see instructions) ..... 15 Property subject to section 168(f)(1) election 16 Other depreciation (including ACRS). Part III ... MACRS Depreciation (Don't include listed property. See instructions.) Section A (a) Classification of property 19a 3-year property b 5-year property c 7-year property 17 MACRS deductions for assets placed in service in tax years beginning before 2020 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here ► a d 10-year property e 15-year property f 20-year property g 25-year property h Residential rental property property i Nonresidential real instructions) (d) Recovery period 7 yrs. 25 yrs. 27.5 yrs. 27.5 yrs. 39 yrs. 13 Section B-Assets Placed in Service During 2020 Tax Year Using the General Depreciation System (b) Month and year placed in service (c) Basis for depreciation (business/investment use only-see 12 yrs. 30 yrs. 40 yrs. (e) Convention 23 For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs... For Paperwork Reduction Act Notice, see separate instructions. HY ✔ MM MM Cat. No. 12906N MM S/L S/L S/L S/L S/L Section C-Assets Placed in Service During 2020 Tax Year Using the Alternative Depreciation System S/L S/L S/L S/L MM 20a Class life b 12-year c 30-year d 40-year Part IV Summary (See instructions.) 21 Listed property. Enter amount from line 28... 22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21. Enter here and on the appropriate lines of your return. Partnerships and S corporations-see instructions.. IMM MM 9 10 23 11 12 0 ✓ 14 15 16 17 (f) Method DDB ✔ 21 22 200,000 ✓ 0 ✓ 0 X 0 X (g) Depreciation deduction Form 4562 (2020) Exhibit 8.4 MACRS Accelerated Depreciation for Personal Property Assuming Mid-Quarter Convention (Percentage Rates) For Property Placed in Service after December 31, 1986 (Partial Table *) 3-Year Recovery Year First Quarter Second Quarter Third Quarter Fourth Quarter 58.33 27.78 1 2 Recovery Year 1 2 Recovery Year First Quarter 1 First Quarter 35.00 26.00 2 25.00 21.43 41.67 38.89 5-Year Second Quarter 25.00 30.00 7-Year Second Quarter 17.85 23.47 25.00 50.00 Third Quarter Fourth Quarter 5.00 38.00 15.00 34.00 8.33 61.11 Third Quarter Fourth Quarter 3.57 27.55 10.71 25.51