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Summary Tax 670 Final Project.docx TAX670 Tax Planning Research Southern New Hampshire University I. Bonus Depreciation and Extra Deduction Nora owns and operates C-C Bakery, and she has contacted our tax firm for advice on three different tax scenar$7.49
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Summary Tax 670 Final Project.docx TAX670 Tax Planning Research Southern New Hampshire University I. Bonus Depreciation and Extra Deduction Nora owns and operates C-C Bakery, and she has contacted our tax firm for advice on three different tax scenar
Tax 670 Final P TAX670 Tax Planning Research Southern New Hampshire University I. Bonus Depreciation and Extra Deduction Nora owns and operates C-C Bakery, and she has contacted our tax firm for advice on three different tax scenarios. In tax situation one, Nora is expanding her busine...
tax 670 final projectdocx tax670 tax planning research southern new hampshire university i bonus depreciation and extra deduction nora owns and operates c c bakery
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TAX670
Tax Planning Research
Southern New Hampshire University
I. Bonus Depreciation and Extra Deduction
Nora owns and operates C-C Bakery, and she has contacted our tax firm for advice on
three different tax scenarios. In tax situation one, Nora is expanding her business and buying new
and used equipment. She needs advice about bonus depreciation, the ability to take an extra
deduction in one year, and whether the assets qualify. She plans to purchase a new $10,000 oven,
a new $5,000 bakery display case, a new $7,000 refrigerator, and freezer, a $5,000 used
commercial mixer. Additionally, she plans to make some leasehold improvements to the building
and roof prices at $20,000.
Issue: How much bonus depreciation and extra deductions can Nora claim on the purchase of the
new and used properties and leasehold improvements?
Authorities:
IRC Section 167
IRC Section 179
IRC Section 168(e)(6)
IRC Section 168(k)
Reg § 1.168(k)-2
Tax Analysis and Summary:
In general, Sec. 167(a), the IRS allows a taxpayer to deduct expenses relating to the wear and
tear and the exhaustion of property used in a trade or business or for property held for the
, production of income spread out over the useful life of the asset. Types of depreciation methods
include straight-line, acceleration depreciation methods, and units of production method.
The IRS allows a taxpayer to elect to deduct the cost of certain property depreciation deduction
for eligible property used in a trade or business or property held to produce income. The eligible
property includes tangible and certain intangible assets, i.e., computer software. Section 179
provision allows a taxpayer to elect to treat the cost of any Sections 179 property as an expense,
which is not chargeable to the capital account. Additionally, the costs will be allowed as a
deduction for the taxable year in which the property was placed in service.
IRC 179(b)(1) provides a limitation on the aggregate cost at which may be considered under
section (a) for any taxable year shall not exceed $1,000,000. IRC 179(b)(2)(1) provides a
deduction limitation for any taxable year, which shall be reduced but not below zero, by the
amount by which the cost of the Sec. 179 property placed in service during such taxable year
exceeds $2,500,000.
The IRS also examines limitations based on the income of the business. Typically, under Sec.
179(3)(A), the amount allowed as a deduction under subsection (a) for any taxable year,
determined by the applications of paragraphs (1) and (2) must not exceed the aggregate amount
of taxable income of the taxpayer for such taxable year which is derived from the active conduct
by the taxpayer of any trade or business during such taxable year.
The qualified property in subsection 168(e)(6) applies to any improvements made by a taxpayer
to the non-residential property’s interior and exterior parts that were placed in service after the
date such building was first placed in service. For instance, improvements made to the roofing,
fire protection and security system, HVAC, i.e., heating, ventilation, and air conditioning, are all
Sec. 179 deductions.
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