Back in Boston Steve has been busy creating and managing

Back in Boston, Steve has been busy creating and managing his new company, Teton Mountaineering (TM), which is based out of a small town in Wyoming. In the process of doing so, TM has acquired various types of assets. Below is a list of assets acquired during 2016: Exhibit 10-8 (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Round intermediate calculations and final answer to the nearest whole dollar amount.)

Asset	Cost		Date Placed in Service
Office furniture	$	10,000	02/03/2016
Machinery		560,000	07/22/2016
Used delivery truck*		15,000	08/17/2016

* Not considered a luxury automobile, thus not subject to the luxury automobile limitations.

During 2016, TM had huge success (and had no 179 limitations) and Steve acquired more assets the next year to increase its production capacity. These are the assets acquired during 2017:

			Date Placed
Asset	Cost		in Service
Computers & info. system	$	40,000	03/31/2017
Luxury auto		80,000	05/26/2017
Assembly equipment		475,000	08/15/2017
Storage building		400,000	11/13/2017

Used 100% for business purposes. TM generated taxable income in 2017 of $732,500 for purposes of computing the 179 expense.

a. Compute the maximum 2016 depreciation deductions including 179 expense (ignoring bonus depreciation).

b. Compute the maximum 2017 depreciation deductions including 179 expense (ignoring bonus depreciation).

c. Compute the maximum 2017 depreciation deductions including 179 expense, but now assume that Steve would like to take bonus depreciation on the 2017 assets.

d. Ignoring part c, now assume that during 2017, Steve decides to buy a competitors assets for a purchase price of $350,000. Compute the maximum 2017 cost recovery including 179 expense (ignoring bonus depreciation). Steve purchased the following assets for the lump-sum purchase price.

			Date Placed
Asset	Cost		in Service
Inventory	$	20,000	09/15/2017
Office furniture		30,000	09/15/2017
Machinery		50,000	09/15/2017
Patent		98,000	09/15/2017
Goodwill		2,000	09/15/2017
Building		130,000	09/15/2017
Land		20,000	09/15/2017

Solution – Back in Boston Steve has been busy creating and managing

Step-by-step Solution

1. Assets Acquired in 2016:
   • Office Furniture: 7-year property
   • Machinery: 7-year property
   • Used Delivery Truck: 5-year property
2. 179 Deduction: Since TM had no limitations for 179 expense, Steve can take full depreciation for each asset under MACRS without 179 expense.
3. MACRS Depreciation: We will calculate the depreciation for each asset using the MACRS tables.

Part (a) – Maximum 2016 Depreciation Deductions (Ignoring Bonus Depreciation)

2016 Assets and Depreciation Calculations

Asset	Cost	Date Placed in Service	Property Class	Depreciation Rate	Depreciation Calculation	2016 Depreciation
Office Furniture	$10,000	02/03/2016	7-year	14.29%	$10,000 × 14.29%	$1,429
Machinery	######	######	######	######	###### × ######	######
Used Delivery Truck	######	0######	######	######	######	######
Total Depreciation						######

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