A taxpayer acquired new machinery costing $50,000 three years ago.The taxpayer had elected Sec.179 expensing to deduct the full cost in the year of acquisition.The taxpayer sells the machinery this year and realizes a $32,000 gain.Sec.1245 will not require any ordinary income recapture on the sale of this asset due to the Sec.179 expensing.

Question

Quizplus · Accepted Answer

When a taxpayer elects to expense property under Sec.179, they must recapture any excess deduction under Sec.1245 if they sell the property at a gain. Therefore, the statement is false. In this scenario, the taxpayer must recapture up to $18,000 of ordinary income under Sec.1245 (the excess of the cost over the basis after the Sec.179 deduction).

A Taxpayer Acquired New Machinery Costing $50,000 Three Years Ago