On June 1, 2012, 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 take additional first-year depreciation.Determine the cost recovery deduction for 2012.
A)$1,776.
B)$1,836.
C)$6,636.
D)$8,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The cost recovery deduction for 2012 includes two components: regular depreciation and first-year bonus depreciation.

The regular depreciation for a passenger automobile used more than 50% for business is calculated using the Modified Accelerated Cost Recovery System (MACRS) over five years. The car's depreciable basis is reduced by the percentage of personal use (40%), so the depreciable basis for tax purposes is $24,000 ($40,000 x 60% x (100%-40%)). Using the MACRS tables, the depreciation deduction for the first year is $4,800 ($24,000 x 20%).

In addition, James can take first-year bonus depreciation of 50% of the remaining depreciable basis (after personal use percentage reduction) because he placed the car in service in 2012. So, the bonus depreciation deduction is $9,600 ($19,200 x 50%).

Therefore, the total cost recovery deduction for 2012 is $14,400 ($4,800 + $9,600).

On June 1, 2012, James Places in Service a New