Problem 1. MACRS & Bonus Depreciation. “MMMMThat’s Good, Inc.” (or MTG) owns a successful chain of over 150casual dining restaurants nationwide. Please calculate the taxdepreciation expense for 2018 for all of the assets listed below(which constitute all the new assets purchased or placed intoservice by MTG in 2018): (i) first using just MACRS AND then (ii)using Bonus Depreciation and MACRS.
(i) MTG purchases a building for a new restaurant on June 20, 2018for $750,000. The land is worth $300,000. On September 15, 2018,MTG purchases new ovens/stoves, prep lines, refrigerators, and adish washing machine (collectively the “Kitchen Equipment”) at acost of $150,000. The restaurant is opened for business onSeptember 30, 2018.
(ii) MTG updates its accounting and inventorymanagement systems for 2015 by purchasing new computer hardware ata cost of $4,500 per store (total cost of $675,000). The computerequipment was all purchased on December 15, 2017 and placed intoservice on January 5, 2018.
(iii) In order to implement pilot testing for a newmenu line at select locations, on December 3, 2018, MTG makes abulk purchase of smoker machines for 30 of its restaurants at acost of $25,000 each or a total cost of $750,000, and immediatelyinstalls the machines and begins use.
Problem 2.
IRC Section 179 & Elections. Assume MTG’s 179deduction is not limited in 2018, but applying cost recovery usingbonus depreciation pushes MTG into a tax loss and so management islooking to limit its total cost recovery to approximately $550,000.Please describe how you might utilize IRC section 179, bonusdepreciation elections, & MACRS depreciation to achieve a totaldeduction for all cost recovery on new assets of $550,000 and thenperform the calculation.
Problem 3.
Dispositions. Returning to the facts of Problem 1, ifafter the pilot testing MTG decided to sell all of the smokermachines on August 10, 2019 for $400,000, what would be the taxconsequences including the amount and nature of any gain orloss?
