David acquired an automobile for $30,000 for use in his unincorporated business at the beginning of 2015 and used the standard mileage rate method in 2015.He plans to switch to the actual expense method for 2016.The automobile was used 25,000 miles in 2015.What is the amount of the adjusted basis of the automobile for purposes of computing depreciation in 2016?
A)$30,000
B)$15,625
C)$24,000
D)$20,000

Question

Quizplus · Accepted Answer

The adjusted basis is the original cost plus any improvements or minus any depreciation taken. Since David used the standard mileage rate method in 2015, he did not take depreciation on the car. Therefore, the adjusted basis for 2016 will be the original cost of $30,000 minus the depreciation deduction taken in 2016 using the actual expense method. The actual expense method includes deductions for depreciation, so if David takes depreciation in 2016, the adjusted basis will be reduced by that amount. Therefore, the adjusted basis for 2016 is still $30,000.

David Acquired an Automobile for $30,000 for Use in His