The only asset Bill purchased during 2018 was a new seven-year class asset. The asset, which was listed property, was acquired on June 17 at a cost of $50,000. The asset was used 40% for business, 30% for the production of income, and the rest of the time for personal use. Bill always elects to expense the maximum amount under § 179 whenever it is applicable. The net income from the business before the § 179 deduction is $100,000. Determine Bill's maximum deduction with respect to the property for 2018.
A) $1,428
B) $2,499
C) $26,749
D) $33,375
E) None of the above

Question

Quizplus · Accepted Answer

Since the asset was acquired on June 17, 2018, the mid-quarter convention is applicable. Therefore, the maximum deduction under § 179 is limited to $25,000 (50% of $50,000).

The business use percentage is 40%, so the maximum § 179 deduction for the business use is $10,000 (40% of $25,000).

The production of income use percentage is 30%, so the maximum § 179 deduction for the production of income use is $7,500 (30% of $25,000).

Since personal use is not a business or production of income use, no § 179 deduction is allowed for personal use.

Therefore, the total maximum § 179 deduction with respect to the property for 2018 is $17,500 ($10,000 + $7,500).

The correct answer is B) $2,499, which is 40% of the maximum § 179 deduction for the business use ($10,000).

The Only Asset Bill Purchased During 2018 Was a New