On March 3,2010,Craig bought a business-use vehicle for $20,000.He used the vehicle for three years and properly deducted a total of $12,000 as depreciation expense during this period.At the end of 2013,Craig sells the vehicle for $7,500.Why is Craig's deductible loss $500?
I.Craig has already recovered $12,000 of his investment through the depreciation deduction.
II.The adjusted basis of the vehicle was $12,000 at the date of sale.
III.$7,500 of the adjusted basis was recovered because of the sale.
IV.The realized loss is recognized because it was incurred with business-use property.

Question

Quizplus · Accepted Answer

Statement I is correct because Craig already deducted $12,000 as depreciation expense, which reduces his basis in the vehicle.

Statement III is correct because $7,500 of the adjusted basis was recovered through the sale.

Statement IV is correct because the loss was incurred with business-use property, which is deductible.

Statement II is incorrect because the adjusted basis of the vehicle at the date of sale would be $8,000 ($20,000 - $12,000 in depreciation), not $12,000.

On March 3,2010,Craig Bought a Business-Use Vehicle for $20,000