On June 1,2015,James places in service a new automobile that cost $40,000.The car is used 60% for business and 40% for personal use.(Assume this percentage is maintained for the life of the car. ) James does not take additional first-year depreciation (if available).Determine the cost recovery deduction for 2015.
A)$1,776
B)$1,896
C)$4,800
D)$8,000
E)None of the above

Question

Quizplus · Accepted Answer

The cost recovery deduction for 2015 is the depreciation for the first year, which is calculated as follows:

Depreciable basis = cost of automobile * business use percentage = $40,000 * 60% = $24,000 
MACRS depreciation for passenger automobiles (placed in service in 2015) using the half-year convention and 5-year recovery period:

Year 1: 15% * $24,000 = $3,600

However, since James did not take additional first-year depreciation, the deduction is reduced by $800 (the amount of bonus depreciation for 2015, which could have been claimed if elected).

Therefore, the cost recovery deduction for 2015 is $3,600 - $800 = $2,800 * 60% (business use percentage) = $1,680

However, since the deduction is subject to the luxury automobile limitations, the maximum deduction for 2015 is $3,160 (the amount calculated by multiplying the business use percentage by the luxury automobile amount for 2015, which is $3,160).

Therefore, the final cost recovery deduction for 2015 is $3,160 * 60% = $1,896, which is answer choice B.

On June 1,2015,James Places in Service a New Automobile That