On May 2,2016,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 2016.Karen wants to maximize her deductions.
A)$7,200
B)$25,000
C)$27,200
D)$37,000
E)None of the above

Question

Quizplus · Accepted Answer

First, we need to determine the depreciation method to use. Since the vehicle has a gross vehicle weight above 6,000 lbs, it is considered a heavy SUV and falls under the Modified Accelerated Cost Recovery System (MACRS) with a 5-year recovery period.

Next, we need to calculate the depreciable basis, which is the cost of the vehicle multiplied by the percentage of business use:

$60,000 x 60% = $36,000

Using MACRS, the depreciation deduction for the first year is calculated as follows:

Year 1: 20% x $36,000 = $7,200

Since Karen wants to maximize her deductions, she can take the full $7,200 depreciation deduction for 2016, even though the vehicle was only used for part of the year. Thus, the answer is (C) $27,200.

On May 2,2016,Karen Placed in Service a New Sports Utility