Bonnie Jo purchased a used camera (five-year property) for use in her sole proprietorship. The basis of the camera was $2,600. Bonnie Jo used the camera in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Bonnie Jo's depreciation deduction during the first year, assuming the sole proprietorship had a loss during the year. (Bonnie did not place the property in service in the last quarter.)

Question

Quizplus · Accepted Answer

Since Bonnie Jo used the camera 60% of the time for business purposes, her depreciation deduction would be 60% of the total depreciation amount.

To calculate the depreciation amount, we first need to determine the recovery period for the camera. Since it is five-year property, the recovery period is five years.

Using the Modified Accelerated Cost Recovery System (MACRS) table for five-year property, we can determine the depreciation percentage for the first year, which is 20%.

Then, we multiply the basis of the camera ($2,600) by the depreciation percentage (20%) to get the total depreciation amount, which is $520.

Since Bonnie Jo used the camera 60% of the time for business purposes, her depreciation deduction for the first year would be 60% of $520, which is $312.

Even though the sole proprietorship had a loss during the year, Bonnie Jo can still claim the depreciation deduction. However, she cannot claim more than the total loss of the business. In this case, we do not have enough information to determine the total loss of the business, so it is not a factor in calculating the depreciation deduction.

Bonnie Jo Purchased a Used Camera (Five-Year Property) for Use