In 2015, a taxpayer purchases a new automobile (5 year recovery) for $56,000 for 100% use in her business. What is the total cost recovery assuming that the taxpayer does or does not elect bonus depreciation on the auto (half-year convention but no immediate expensing)?

Question

​In 2015, a taxpayer purchases a new automobile (5 year recovery) for $56,000 for 100% use in her business. What is the total cost recovery assuming that the taxpayer does or does not elect bonus depreciation on the auto (half-year convention but no immediate expensing)?

Quizplus · Accepted Answer

Since the automobile is 100% used in the taxpayer's business, it qualifies for 50% bonus depreciation in the year it was placed in service. The taxpayer can choose to elect or not to elect bonus depreciation.

Without bonus depreciation, the total cost recovery over the 5-year recovery period is calculated as follows:
Year 1: ($56,000 / 5) x 1/2 = $5,600
Year 2: ($56,000 / 5) x 1 = $11,200
Year 3: ($56,000 / 5) x 1 = $11,200
Year 4: ($56,000 / 5) x 1 = $11,200
Year 5: ($56,000 / 5) x 1 = $11,200
Total: $50,400

With bonus depreciation, the total cost recovery over the 5-year recovery period is calculated as follows:
Year 1: (($56,000 x 50%) x 1/2) = $14,000
Year 2: (($56,000 x 50%) x 1) = $28,000
Year 3: (($56,000 x 50%) x 1) = $28,000
Year 4: (($56,000 x 50%) x 1) = $28,000
Year 5: (($56,000 x 50%) x 1) = $28,000
Total: $126,000

Therefore, the total cost recovery with bonus depreciation is $126,000 and without bonus depreciation is $50,400. The best choice is C.

​In 2015, a Taxpayer Purchases a New Automobile (5 Year

In 2015, a Taxpayer Purchases a New Automobile (5 Year