Hans purchased a new passenger automobile on August 17, 2019, for $30,000.During the year, the car was used 40% for business and 60% for personal use.Determine his cost recovery deduction for the car for 2019.
A)$500
B)$1,000
C)$1,200
D)$1,333

Question

Quizplus · Accepted Answer

To calculate the cost recovery deduction for the car for 2019, we need to use the Modified Accelerated Cost Recovery System (MACRS) depreciation method.

First, we need to determine the car's depreciable basis. Since the car was purchased for $30,000, and it was used 40% for business and 60% for personal use, the depreciable basis for the car is:

$30,000 x 40% = $12,000

Next, we need to determine the depreciation method and recovery period for the car. Since it is a passenger automobile and not a truck or SUV, we use the 5-year recovery period and the following MACRS depreciation percentages:

Year 1: 20.00%
Year 2: 32.00%
Year 3: 19.20%
Year 4: 11.52%
Year 5: 11.52%
Year 6: 5.76%

Using these percentages and the depreciable basis of $12,000, we can calculate the cost recovery deduction for the car for 2019:

$12,000 x 20.00% = $2,400

However, since the car was only used for part of the year (from August 17 to December 31, a total of 137 days out of 365), we need to prorate the cost recovery deduction accordingly:

$2,400 x (137/365) = $900

Finally, since this cost recovery deduction is for business use only, we need to further prorate it based on the percentage of business use:

$900 x 40% = $360

Therefore, the cost recovery deduction for the car for 2019 is $360, which is closest to option C ($1,200).

Hans Purchased a New Passenger Automobile on August 17, 2019