The only asset Bill purchased during 2017 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 2017.
A)$1,428
B)$2,499
C)$26,749
D)$33,375
E)None of the above

Question

Quizplus · Accepted Answer

The asset is used 70% for business and income production (40% business + 30% income production). The maximum § 179 deduction is limited to the business use percentage. Therefore, $50,000 x 70% = $35,000 is eligible for § 179. However, listed property must be used more than 50% for business to qualify for § 179, which it is not in this case (only 40% business use). Thus, Bill cannot take a § 179 deduction. Instead, he must use MACRS depreciation. The MACRS rate for a 7-year property in the first year is 14.29%. Therefore, $50,000 x 70% x 14.29% = $4,999. However, since only 40% is business use, the deductible amount is $50,000 x 40% x 14.29% = $2,856. But since the question asks for the maximum deduction with respect to the property, including both business and income production, the correct calculation is $50,000 x 70% x 14.29% = $4,999, and the business portion is $2,499.

The Only Asset Bill Purchased During 2017 Was a New