Blue Company acquires a used machine for $45,000 and uses it in Blue's manufacturing operations.A few months after Blue places the machine in service,it discovers that the machine is not suitable for Blue's business.Blue had fully expensed the machine in the year of acquisition using § 179.Blue sells the machine for $5,000 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?

Question

Quizplus · Accepted Answer

The machine was an ordinary asset because it was used in Blue's trade or business and held for less than a year. The sale resulted in a $5,000 gain, as the machine was fully expensed under § 179, making the adjusted basis $0.

Blue Company Acquires a Used Machine for $45,000 and Uses