On July 17,2013,Kevin places in service a used automobile that cost $25,000.The car is used 80% for business and 20% for personal use.In 2014,he used the automobile 40% for business and 60% for personal use.Determine the cost recovery recapture for 2014.
A)$0.
B)$528.
C)$2,000.
D)$2,500.
E)None of the above.

Question

Quizplus · Accepted Answer

First, we need to calculate the adjusted basis of the car in 2014: 
Adjusted basis = original cost - depreciation claimed 
In 2013, Kevin can claim 80% of the car's cost as a business expense: 
Business cost in 2013 = $25,000 x 80% = $20,000 
Therefore, depreciation claimed in 2013 = $20,000 ÷ 5 years = $4,000 
Adjusted basis in 2014 = $25,000 - $4,000 = $21,000

In 2014, Kevin can claim 40% of the car's adjusted basis as a business expense: 
Business cost in 2014 = $21,000 x 40% = $8,400

Now, we need to calculate the cost recovery recapture: 
Recapture amount = (total depreciation claimed) - (depreciation that would have been claimed if the car was 100% used for business) 
The depreciation that would have been claimed if the car was 100% used for business can be calculated as: 
100% of adjusted basis ÷ 5 years 
= $25,000 ÷ 5 years = $5,000 per year

Therefore, depreciation that would have been claimed in 2014 = $5,000 x 40% (business use percentage in 2014) = $2,000 
Total depreciation claimed in 2014 = $21,000 ÷ 5 years x 40% (business use percentage in 2014) = $1,680

Recapture amount = $1,680 - $2,000 = -$320 
Since the recapture amount is negative, it means there is no recapture to be included in Kevin's tax return. Therefore, the correct answer is B) $0.

On July 17,2013,Kevin Places in Service a Used Automobile That