On May 2,2010,Karen places in service a new sports utility vehicle that cost $70,000 and has a gross vehicle weight of 6,300 lbs.The vehicle is used 40% for business and 60% for personal use.Determine the cost recovery deduction for 2010.

Question

Quizplus · Accepted Answer

The cost recovery deduction for the first year is calculated using the Modified Accelerated Cost Recovery System (MACRS) method. For a vehicle with gross vehicle weight over 6,000 lbs, the MACRS recovery period is 5 years. However, for the first year, only half-year depreciation is allowed. Using the 40% business use percentage, the cost recovery deduction for 2010 is calculated as follows:

Total Cost = $70,000 
Half-year depreciation = $70,000 / 2 = $35,000 
MACRS Depreciation percentage for 5-year property (Table A-1) = 20% 
Business Use percentage = 40% 
Cost Recovery Deduction for 2010 = $35,000 x 20% x 40% = $2,800

Therefore, the best choice is B, $2,800.

On May 2,2010,Karen Places in Service a New Sports Utility