TAX CASE – Fall 2018
Karane Enterprises, a calendar-year manufacturer based in College Station, Texas, began business in 2017. In the process of setting up the business, Karane has acquired various types of assets. Below is a list of assets acquired during 2017:
| Asset | Cost | Date Placed in Service |
| Office furniture | $ 150,000 | 02/03/2017 |
| Machinery | 1,560,000 | 07/22/2017 |
| Used delivery truck | 40,000 | 08/17/2017 |
- During 2017, Karane was very successful (and had no §179 limitations) and decided to acquire more assets this next year to increase its production capacity. These are the assets acquired during 2018:
| Asset | Cost | Date Placed in Service |
| Computers & Info. system | $ 40,000 | 03/31/2018 |
| Luxury auto† | 80,000 | 05/26/2018 |
| Assembly equipment | 1,200,000 | 08/15/2018 |
| Storage building | 700,000 | 11/13/2018 |
- Karane generated taxable income in 2018 of $1,732,500 for purposes of computing the §179 expense.
Required
- Compute the maximum 2017 depreciation deductions including §179 expense (ignoring bonus depreciation).
- Compute the maximum 2018 depreciation deductions including §179 expense (ignoring bonus depreciation).
- Compute the maximum 2018 depreciation deductions including §179 expense, but now assume that Karane would like to take bonus depreciation.
- Now assume that during 2018, Karane decides to buy a competitor’s assets for a purchase price of $1,350,000. Compute the maximum 2018 cost recovery including §179 expense and bonus depreciation. Karane purchased the following assets for the lump-sum purchase price.
Asset Cost Date Placed in Service
Inventory $220,000 09/15/2018
Office furniture 230,000 09/15/2018
Machinery 250,000 09/15/2018
Patent 198,000 09/15/2018
Goodwill 2,000 09/15/2018
Building 430,000 09/15/2018
Land 20,000 09/15/2018
- Complete Part I of Form 4562 for part (b) (use the most current form available at irs.gov).
