White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations. A few months after White places the machine in service, it discovers that the machine is not suitable for White's business. White had fully expensed the machine in the year of acquisition using § 179. White sells the machine for $60,000 in the tax year after it was acquired, but held the machine only for a total of 10 months. What was the tax status of the machine when it was disposed of and the amount of the gain or loss?
A) A capital asset and $60,000 gain.
B) An ordinary asset and $60,000 gain.
C) A § 1231 asset and $60,000 gain.
D) A § 1231 asset and $60,000 loss.
E) None of the above.

Question

Quizplus · Accepted Answer

The machine is considered an ordinary asset because it was held for less than a year and used in the business. The gain is calculated as the selling price ($60,000) minus the adjusted basis ($0, since it was fully expensed under § 179), resulting in a $60,000 gain.

White Company Acquires a New Machine for $75,000 and Uses