Question: Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $400,000 on May 20,2016. Lori expects the taxable income derived from her business (without regard to the amount expensed under sec 179) to be about $800,000. Lori wants to elect immediate sec 179 expensing, but she doesn't know which asset she should expense under sec 179. She does not claim any available additional first-year depreciation.
a. Determine Lori's total deduction if the sec 179 expense is first taken with respect to the 5-year class asset.
b. Determine Loris total deduction if the sec 179 expense if first taken with respect to the 7-year class asset.
c. What is your advice to Lori?
d. Assume that Lori is in the 25% marginal tax bracket and that she uses sec 179 on the 7-year asset. Determine the present value of the tax savings from the depreciation deductions for both assets.
e. Assume the same facts as in (d) except that Lori decides not to use sec 179 on either asset. What is the present value of the tax savings generated by using the sec 179 deduction on the 7-year asset?