Detailed Answer
(b) The requirement is to determine the maximum
amount of Sec. 179 expense election that Aviation Corp. will be
allowed to deduct for 2012, and the maximum amount of expense
election that it can carry over to 2013. Sec. 179 permits a
taxpayer to elect to treat up to $500,000 (for 2012 and 2013) of
the cost of qualifying depreciable personal property as an expense
rather than as a capital expenditure. The $500,000 maximum is
reduced dollar-for-dollar by the cost of qualifying property placed
in service during the taxable year that exceeds $2 million. Here,
since the production machinery cost $570,000, the maximum
amount that can be expensed is $500,000. However, this amount
is further limited as a deduction for 2012 to Aviation’s taxable
income of $405,000 before the Sec. 179 expense deduction. The
remainder ($500,000 – $405,000 = $95,000) that is not currently
deductible because of the taxable income limitation can be carried
over and will be deductible subject to the taxable income
limitation in 2013.