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Taxation - Marvelous Munchies and Van Fleet

Depreciation and Section 179 deduction for Marvelous Munchies

During the year 2020, a calendar-year taxpayer, Marvelous Munchies, a chain of specialty food shops, purchased equipment as follows:

Date     Asset                ___     _   Cost___    
March 3    5 Year Property                $600,000
October 9    5 Year Property         $2,200,000

For 2020, Marvelous Munchies has taxable income equal to $910,000 unless you are told differently in a question below.  Each scenario below is independent of the others unless you are told otherwise in the question.

    a. What is the maximum depreciation that may be deducted for the assets this year, 2020, assuming Sec. 179 expensing and bonus depreciation are not claimed? 


    b. What is the maximum Sec. 179 deduction allowed for 2020 assuming that Sec. 179 is elected? 


    c. If the taxpayer’s taxable income was $600,000 rather than $910,000, how much Sec. 179 carryover would pass to the next tax year using the facts from b. above?


    d. What is the maximum depreciation that may be deducted for the assets this year, 2020, assuming both Sec. 179 expensing and bonus depreciation are claimed? 


Part 2 
During 2020, Richard and Greta Van Fleet, who are married and have no dependent children, have the following information:

Total salaries               $100,000
Bank account interest                         7,000
State of Idaho bond interest                                                                     4,000
Gift from Greta’s dad                   15,000
Life insurance proceeds (Richard’s mom died)                 200,000
Sale of Qualified Small Business Stock (adj. basis =$500,000)           1,250,000
Dividend income (BMW-based in Germany)                      6,000
Long-term capital gains                   10,000
Long-term capital losses                           (6,000)
ABC limited partnership interest (passive)*                                31,000
XYZ limited partnership interest (passive)*                            (34,000)
* (these limited partnerships are not
   real estate related)

They also incurred the following expenses:
Qualified medical expenses                  $ 9,000
State & local income taxes paid                     6,500
Property taxes on home                     4,500
Qualified residence interest (original amount borrowed = $400,000)      11,000
Cash charitable contributions ($6,500 - church; $2,500 – St. Jude
    Children’s Hospital)                      9,000

They have the following federal tax payments:
Income tax withheld                                                                   $8,400
Estimated tax payments                     2,400

Also, they want to make the maximum contribution possible to Roth IRAs for both of them. Both of them are active participants in qualified plans at work.  Richard is 52, and Greta is 48.

Be prepared to answer questions regarding gross (total income……….  taxable income…….. Federal tax liability………and additional tax due to the IRS or (refund due) back to the taxpayers

1)Van Fleets will have AGI equal to $…………
2)Based on the fact pattern provided for Richard and Greta Van Fleet, The Van Fleets will have a federal income tax liability (before any credits or tax payments) equal to $………..
3)Bases on the fact pattern provides for Richard and Greta Van Fleet, The Van Fleets will have a additional federal income owned to IRS or refund due back to them equal to $............(if it is a refund your answer with parentheses and whole number)

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