The only asset Bill purchased during 2012 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 2012.
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% + 30%), so it qualifies for a § 179 deduction. The maximum § 179 deduction is limited to the business use percentage of the asset's cost: $50,000 x 70% = $35,000. However, the deduction is also limited by the business income, which is $100,000. The MACRS depreciation for a 7-year property used 70% for business is calculated as $50,000 x 70% x 14.29% = $4,999. The total deduction is the sum of the § 179 deduction and the MACRS depreciation, but the § 179 deduction is limited to the business use percentage of the asset's cost, which is $35,000. Therefore, the maximum deduction is $2,499 (MACRS depreciation only, as the § 179 deduction is not applicable due to the business use percentage limitation).

The Only Asset Bill Purchased During 2012 Was a New