0b3hks001[at]sneakemail.com wrote:

- quote -

Receipt of the repair cost will be ordinary income to the
corporation, and not a capital gain item. It bears no
relationship whatsoever to purchase of a new piece of
property.

ChEAr$,
Harlan Lunsford, EA n LA
Sun 20 Mar 2005

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Background: A single-shareholder C Corp. has a 3+ year old
laptop that developed a video problem. The repair is
covered by the Credit Card Company ("CCC") under its
extended warranty.

Since it is relatively expensive to replace the LCD, and the
laptop is relatively outdated, I asked the CCC whether they
would simply pay the repair cost and the Corp. will use that
money to offset the cost of purchasing a new laptop. The
CCC has no problem with that; and they pay the Corp. the
written estimated repair cost.

The Corp. still has the laptop. The Corp. expects to
purchase the new laptop before year-end; and it may let the
old one just sit there or just give it away. [On the
manufacturer's web site, the sellling price for the same
model -- reconditioned -- is about $50 more than the cost of
repair, but comes with a short warranty.

Questions: The old laptop was a Sec. 179 deduction at time
of purchase. Is there a capital gains for the receipt of
the repair cost? Or can it be a reduction of the cost basis
for the new laptop? If reduction of cost basis, can the
reduced cost basis of the new laptop be a Sec. 179
deduction?

TIA

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