Billie Bob purchased a used camera (5-year property) for use in his sole proprietorship in the prior year. The basis of the camera was $2,400. Billie Bob used the camera in his business 60 percent of the time during the first year. During the second year, Billie Bob used the camera 40 percent for business use. Calculate Billie Bob's depreciation expense during the second year assuming the sole proprietorship had a loss during the year (Billie Bob did not place the asset in service in the last quarter). (Use MACRS Table 1)
A) $0.
B) $48.
C) $192.
D) $336.
E) None of the choices are correct.

Question

Billie Bob purchased a used camera (5-year property) for use in his sole proprietorship in the prior year. The basis of the camera was $2,400. Billie Bob used the camera in his business 60 percent of the time during the first year. During the second year, Billie Bob used the camera 40 percent for business use. Calculate Billie Bob's depreciation expense during the second year assuming the sole proprietorship had a loss during the year (Billie Bob did not place the asset in service in the last quarter). (Use MACRS Table 1)
A) $0.
B) $48.
C) $192.
D) $336.
E) None of the choices are correct.

Quizplus · Accepted Answer

Because the listed property's business use drops below 50%, the straight-line method must be used and all prior years' excess depreciation must be recaptured. The asset's recovery period is 5 years and the half-year convention applies. The calculation for the current year's depreciation before adjusting for the prior year is $2,400 × 0.20 × 40% = $192. But he must recapture prior depreciation of $144 ($2,400 × 0.20 × 60% = $288 taken less $144 (straight-line, ½ year)) that would have been taken. Therefore, the current year depreciation expense is $192 − $144 = $48.

Billie Bob Purchased a Used Camera (5-Year Property) for Use