Max purchases a new auto in 2019 at a cost of $56,000. He uses the car 80% for business. Assuming a half-year convention, bonus depreciation, but no immediate expensing, what is the depreciation deduction on the auto?

Question

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The first step is to determine the depreciable basis of the auto, which is the original cost multiplied by the percentage of business use: 
$56,000 x 80% = $44,800

Next, we need to apply the appropriate depreciation method and convention. Since the half-year convention is specified in the question, we will use that.

Under bonus depreciation, 100% of the depreciable basis can be written off in the first year. However, since there is no immediate expensing, we must use the modified accelerated cost recovery system (MACRS) to determine the percentage of the depreciable basis that can be written off in the first year.

Using the MACRS tables for 5-year property and the half-year convention, we can see that the first year depreciation percentage is 20%.

Therefore, the depreciation deduction for Max's auto in 2019 is: 
$44,800 x 20% = $8,960 
But since it is bonus depreciation, Max can write off the entire $44,800 in the first year. 
So, the answer is $14,480.

Max Purchases a New Auto in 2019 at a Cost