On March 3, 2011, Craig bought a business-use vehicle for $20,000. He used the vehicle for three years and properly deducted a total of $12,000 as depreciation expense during this period. At the end of 2014, Craig sells the vehicle for $7,500. Why is Craig's deductible loss $500? I. Craig has already recovered $12,000 of his investment through the depreciation deduction. II. The adjusted basis of the vehicle was $12,000 at the date of sale. III. $7,500 of the adjusted basis was recovered because of the sale. IV. The realized loss is recognized because it was incurred with business-use property.

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Craig's deductible loss is calculated by subtracting the sale price from the adjusted basis. The adjusted basis is the original cost minus depreciation, which is $8,000 ($20,000 - $12,000). The sale price is $7,500, resulting in a $500 loss ($8,000 - $7,500). Statements I, III, and IV explain the recovery of investment, the sale recovery, and the recognition of the loss.

On March 3, 2011, Craig Bought a Business-Use Vehicle for $20,000