On June 1, 2017, 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. Determine the cost recovery deduction for 2017.
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 2017 is calculated as follows:

Total cost of the car = $40,000

Business use percentage = 60%

Total cost of car allocated to business use = $40,000 x 60% = $24,000

The cost recovery deduction for the first year is calculated as follows:

MACRS depreciation for the first year = 20% x $24,000 = $4,800

Since James did not take additional first-year depreciation, the final cost recovery deduction for 2017 is:

Cost recovery deduction for 2017 = $4,800 x 60% = $2,880

However, since this is only asking for the cost recovery deduction for 2017, we only need to consider the portion of the year the car is in service. Assuming the car was placed in service on June 1, 2017, there are only 214 days left in the year. Therefore, the cost recovery deduction for 2017 is:

Cost recovery deduction for 2017 = ($4,800 / 365) x 214 x 60% = $1,896

Therefore, the best choice is B.

On June 1, 2017, James Places in Service a New