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Roy -

Just a couple of minor points:

first, computers are "listed" property. and as such, are subject to certain allocation rules. thus, the depreciable basis would be the total basis times the "business" useage (in this case, substitute "investment" for business).

second, I believe that your judgement on the lower of cost or market interpretation is a bit harsh, as the taxpayer clearly placed the computer "in service" in a prior tax year. While I can see the service using such an argument, I believe the taxpayer would have an effective reporting position in maintaining that the useage allocation changed in the current tax year (thus permitting the use of the original cost - pre useage allocation - for depreciation purposes).

finally, using the MACRS tables, the current year would be year two of the computers depreciable life.

just my (unresearched) opinion...

Dale, a cpa
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