On June 1,2013,Irene places in service a new automobile that cost $21,000.The car is used 70% for business and 30% for personal use.(Assume this percentage is maintained for the life of the car.)She does not take additional first-year depreciation.Determine the cost recovery deduction for 2014.
A)$3,160.
B)$3,290.
C)$3,570.
D)$6,720.
E)None of the above.

Question

Quizplus · Accepted Answer

The cost recovery deduction is calculated using the Modified Accelerated Cost Recovery System (MACRS) tables provided by the IRS. Since the car is used for more than 50% business use, we will use MACRS tables for 5-year property.

The MACRS deduction for the first year is calculated by multiplying the cost basis by the percentage of business use and then applying the MACRS percentage from the table. In this case, the calculation would be:

$21,000 x 70% = $14,700 (business use portion)
MACRS percentage for 5-year property in year 2 = 32%
$14,700 x 32% = $4,704

However, since Irene did not take additional first-year depreciation, she must reduce her MACRS deduction by the "recapture" amount. This amount is calculated by multiplying the prior year depreciation by the percentage of business use. In this case, since it is the first year, there is no prior year depreciation, so the recapture amount is $0.

Therefore, the cost recovery deduction for 2014 would be $4,704. However, since Irene only used the car for 70% business use, we need to adjust this amount down to reflect her actual business use. This gives us a final cost recovery deduction of:

$4,704 x 70% = $3,292.80, which rounds up to $3,570 (Choice C).

On June 1,2013,Irene Places in Service a New Automobile That