Douglas bought office furniture two years and four months ago for $25,000 to use in his business and elected to expense all of it under Sec.179.Depreciation of $3,500 would have been taken under the MACRS rules.If Douglas converts the furniture to nonbusiness use today,Douglas must
A)amend the prior two years tax returns.
B)include $3,500 in gross income in year of conversion.
C)include $21,500 in gross income in year of conversion.
D)include $25,000 in gross income in year of conversion.

Question

Quizplus · Accepted Answer

When Douglas elected to expense all of the office furniture under Sec. 179, he gave up his right to claim any depreciation deductions for the furniture in the future. Therefore, he cannot use the MACRS rules to claim $3,500 in depreciation now that he is converting the furniture to nonbusiness use. According to IRS guidelines, when property is converted from business use to personal use, any depreciation previously claimed under Sec. 179 must be added back as income in the year of conversion. Since Douglas expensed the full cost of the furniture ($25,000), he must include that entire amount in his gross income in the year of conversion, resulting in answer choice C. He does not need to amend any prior tax returns.

Douglas Bought Office Furniture Two Years and Four Months Ago