Janet purchased a new car on June 5,2013,at a cost of $20,000.She used the car 80% for business and 20% for personal use in 2013.She used the automobile 40% for business and 60% for personal use in 2014.Janet takes additional first-year depreciation.Determine Janet's cost recovery recapture for 2014.
A)$0.
B)$928.
C)$1,008.
D)$7,328.
E)None of the above.

Question

Quizplus · Accepted Answer

To calculate the cost recovery recapture, we need to first calculate the adjusted basis of the car in 2014.

In 2013, Janet used the car 80% for business, so the business portion of the cost was $20,000 x 80% = $16,000. The personal portion of the cost was $20,000 x 20% = $4,000.

Using the half-year convention, the depreciation deduction she could take in 2013 was $16,000 x 50% = $8,000. This leaves an adjusted basis of $16,000 - $8,000 = $8,000 going into 2014.

In 2014, Janet used the car 40% for business and 60% for personal use. So, she can deduct depreciation of $8,000 x 40% = $3,200 for business use.

However, the additional first-year depreciation is subject to recapture in the year the property is no longer used predominantly in a qualified business use. In 2014, Janet used the car for business only 40% of the time, which means it is no longer predominantly used for business.

So, the amount of additional first-year depreciation subject to recapture in 2014 is $16,000 x 50% x 40% = $3,200. This amount is recaptured as ordinary income and is reported on Form 4797.

Therefore, the cost recovery recapture for 2014 is $3,200, or answer choice D.

Janet Purchased a New Car on June 5,2013,at a Cost