Janet purchased a new car on June 5,2011,at a cost of $18,000.She used the car 80% for business and 20% for personal use in 2011.She used the automobile 40% for business and 60% for personal use in 2012.Janet elects not to take additional first-year depreciation.Determine Janet's cost recovery recapture for 2012.

Question

Quizplus · Accepted Answer

To determine the cost recovery recapture, we first need to calculate the adjusted basis of the car at the beginning of 2012.

Adjusted basis at beginning of 2012 = Cost of car - Accumulated depreciation through Dec. 31, 2011

Accumulated depreciation in 2011 = 80% × ($18,000) × (6/12) × (0.25) = $1,350

So,

Adjusted basis at beginning of 2012 = $18,000 - $1,350 = $16,650

For 2012, Janet used the car 40% for business and 60% for personal use. Let's first calculate the depreciation deduction for 2012.

Depreciation in 2012 = (depreciation rate) × (adjusted basis)

Using MACRS (Table A-1), the depreciation rate for 5-year property (such as a car) in Year 2 is 32%.

So, depreciation in 2012 = 32% × $16,650 = $5,328

Since Janet used the car 40% for business, her business depreciation deduction is:

Business depreciation deduction = (business use %) × (depreciation in 2012)

= 0.40 × $5,328

= $2,131

Now, let's calculate the cost recovery recapture.

Cost recovery recapture = (amount realized from disposition) - (adjusted basis at the time of disposition)

Assuming Janet sold the car at the end of 2012 for $14,000, the amount realized from disposition is $14,000.

Adjusted basis at the time of disposition = adjusted basis at beginning of 2012 - depreciation claimed in 2012

Depreciation claimed in 2012 = business depreciation deduction

= $2,131

Adjusted basis at the time of disposition = $16,650 - $2,131 = $14,519

So,

Cost recovery recapture = $14,000 - $14,519 = -$519

A negative cost recovery recapture means that Janet does not have to recapture any depreciation in 2012.

Therefore, the answer is (C) $1,008.

Janet Purchased a New Car on June 5,2011,at a Cost