On May 2,2015,Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs.The vehicle is used 60% for business and 40% for personal use.Determine the cost recovery for 2015.Karen wants to maximize her deductions.
A)$7,200
B)$25,000
C)$26,800
D)$37,000
E)None of the above

Question

Quizplus · Accepted Answer

Karen can choose to use either the Modified Accelerated Cost Recovery System (MACRS) or Section 179 expense deduction to recover the cost of the vehicle. 
Using MACRS, the recovery period for an SUV with a gross vehicle weight of more than 6,000 lbs is 5 years. The recovery percentage for the first year is 20.00%. Since the vehicle is used 60% for business, the cost recovery for 2015 using MACRS is calculated as follows: 
$60,000 x 20% x 60% = $7,200 
However, Karen may choose to use the Section 179 expense deduction instead of MACRS. The maximum amount that can be expensed for 2015 is $25,000, but there is a dollar-for-dollar reduction in this limit for vehicles that weigh more than 6,000 lbs. Since Karen's SUV weighs 6,300 lbs, the maximum amount that can be expensed is reduced by $10,000, resulting in a Section 179 expense deduction limit of $15,000. Since the vehicle is used 60% for business, the cost recovery for 2015 using Section 179 expense deduction is calculated as follows: 
$60,000 x 60% x 40% x 35.00% = $26,800 
Since $26,800 is greater than $7,200, the best choice is C.

On May 2,2015,Karen Placed in Service a New Sports Utility