Billie Bob purchased a used camera (five-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 deduction 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.)

Question

Quizplus · Accepted Answer

Billie Bob must use the MACRS depreciation method for the camera. In the second year, the business use dropped to 40%, which is below the 50% threshold for MACRS. Therefore, he must switch to the straight-line method over the remaining life of the asset. The depreciation for the second year is calculated as 40% of the straight-line depreciation for the remaining life of the asset. The straight-line depreciation for the second year is $240 (20% of $2,400), and 40% of $240 is $96. However, since the business use is less than 50%, the depreciation is limited to the business use percentage, resulting in a deduction of $48 (40% of $120).

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