On May 2, 2014, Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs. The vehicle is used 60% for business and 40% for personal use. Determine the cost recovery for 2014. Karen wants to maximize her deductions.

Question

Quizplus · Accepted Answer

To determine cost recovery for 2014, we need to calculate the depreciation deduction using the Modified Accelerated Cost Recovery System (MACRS). Since the vehicle is classified as a "heavy" SUV, we use the MACRS 5-year table.

First, we need to calculate the depreciable basis of the vehicle. This is the cost of the vehicle multiplied by the percentage of business use:

$60,000 x 60% = $36,000

Next, we use the MACRS 5-year table and the half-year convention to calculate the depreciation deduction:

Year 1: 20% x $36,000 = $7,200

However, there is a limit on the depreciation deduction for heavy SUVs in the first year. According to IRS regulations, the maximum first-year depreciation deduction for a heavy SUV placed in service in 2014 is $3,160.

So, the depreciation deduction for 2014 is limited to $3,160.

Since this is the only deduction for 2014, the correct answer is (C) $26,800.

On May 2, 2014, Karen Placed in Service a New