Problem 8-40 (Algorithmic) (LO

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Problem 8-40 (Algorithmic) (LO. 2, 3, 9) On March 5, 2020, Javier Sanchez purchased and placed in service a new 7-year class asset costing $362,000 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 $434,400 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: $ 23,150 Total cost recovery deduction in 2021: 39,674 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. OMB No. 1545-0172 Form 4562 2020 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. Attachment Department of the Treasury Internal Revenue Service (99) Sequence No. 179 Name(s) shown on return Business or activity to which this form relates Identifying number Internal Revenue Service (99) Go to www.irs.gov/Form4562 for instructions and the latest information. Sequence No. 179 Identifying number Name(s) shown on return Javier Sanchez Business or activity to which this form relates Sanchez Landscaping, LLC 123-45-6789 Part I Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I. 1 Maximum amount (see instructions). 1 1,040,000 2 Total cost of section 179 property placed in service (see instructions) 2 362,000 3 Threshold cost of section 179 property before reduction in limitation (see instructions) 3 2,590,000 4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -o- ...... 4 4 2,228,000 5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -O-. If married filing separately, see instructions 5 1,188,000 6 (a) Description of property (b) Cost (business use only) (C) Elected cost Landscaping equipment 362,000 200,000 7 Listed property. Enter the amount from line 29... 7 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 8 200,000 9 Tentative deduction. Enter the smaller of line 5 or line 8 9 200,000 10 Carryover of disallowed deduction from line 13 of your 2019 Form 4562 . 10 0 10 Carryover of disallowed deduction from line 13 of your 2019 Form 4562 10 0 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5 (see instructions).. 11 434,400 12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11 12 200,000 13 Carryover of disallowed deduction to 2021. Add lines 9 and 10, less line 12 .... 13 0 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 14 15 16 Other depreciation (including ACRS).. 16 Part III MACRS Depreciation (Don't include listed property. See instructions.) Section A 17 MACRS deductions for assets placed in service in tax years beginning before 2020 .. 17 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 0 Section B-Assets Placed in Service During 2020 Tax Year Using the General Depreciation System (a) Classification of property (b) Month and year placed in service (c) Basis for depreciation (business/investment use only-see instructions) (d) Recovery period (e) Convention (f) Method (g) Depreciation deduction (a) Classification of property (b) Month and year placed in service (d) Recovery period (business/investment use only-see instructions) (e) Convention (f) Method (g) Depreciation deduction 19a 3-year property b 5-year property c 7-year property 7 yrs. HY DDB d 10-year property e 15-year property f 20-year property g 25-year property 25 yrs. S/L h Residential rental 27.5 yrs. MM S/L property 27.5 yrs. MM S/L i Nonresidential real 39 yrs. MM S/L property MM S/L Section C-Assets Placed in Service During 2020 Tax Year Using the Alternative Depreciation System 20a Class life S/L b 12-year 12 yrs. S/L c 30-year 30 yrs. MM S/L d 40-year 40 yrs. MM S/L Part IV Summary (See instructions.) property 27.5 yrs. MM S/L i Nonresidential real 39 yrs. MM S/L property MM S/L Section C-Assets Placed in Service During 2020 Tax Year Using the Alternative Depreciation System 20a Class life S/L b 12-year 12 yrs. S/L c 30-year 30 yrs. MM S/L d 40-year 40 yrs. MM S/L Part IV Summary (See instructions.) 21 Listed property. Enter amount from line 28 21 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 ... 22 23 For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs. 23 For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 12906N Form 4562 (2020)