Question

[97] Gleim #: 6.2.41
Juliet bought and placed in service computer equipment in 2011. She paid $10,000 and
received a $2,000 trade-in allowance for her old computer equipment. She had an
adjusted basis of $3,000 in the old computer equipment. Juliet used both the old and new
equipment 90% for business and 10% for personal purposes. Assuming she elects out of
additional first-year depreciation, her allowable Sec. 179 expense deduction is
A.
B.
C.
D.

$10,000
$10,800
$9,000
$12,000

Answer 1

Answer Option (C) 9000

In 2011, Sec. 179 allows a taxpayer to treat up to $500,000 of the cost of Sec. 179 property acquired as an expense rather than as a capital expenditure. However, the cost of Sec. 179 property does not include the basis determined by reference to other property held by the taxpayer [Sec. 179(d)(3)]. The basis of the new computer is $13,000 ($3,000 basis of old computer + $10,000 purchase price). Since Sec. 179 does not apply to any portion of the basis that references an asset that was previously held by the taxpayer, only $10,000 of basis is eligible for Sec. 179 [Reg. 1.179-4(d)]. Only the 90% portion of the computer used for business will qualify, however. Therefore, the Sec. 179 expense is $9,000 (90% × $10,000 cost)