Question

Required information The following information applies to the questions displayed below.) Lina purchased a new car for use in her business during 2019. The auto was the only business asset she purchased during the year and her business was extremely profitable. Calculate her maximum depreciation deductions (including $179 expense unless stated otherwise) for the automobile in 2019 and 2020 (Lina doesn't want to take bonus depreciation for 2019 or 2020) in the following alternative scenarios (assuming half-year convention for all): (Use MACRS Table 1. Table 2 and Exhibit 10-10.) a. The vehicle cost $35,000 and business use is 100 percent (ignore $179 expense) Year Depreciation deduction 2019 2020

That is the order it is on the homework assignment.

Answer 1

Cost Depreciable Business use value Year Maximum Maximum depreciation depreciation deduction if deduction if MACRS Dep. 179 expense section 179 is MACRS is opted for used 35,000 7,000 7,000 35,000 11,200 11,200 A) $35,000 100% 35,000 2019 2020 $80,000 100% 80,000 80,000 80,000 2019 2020 16,000 25,600 16,000 25,600 $80,000 80% 64,000 2019 64,000 64,000 12,800 20,480 12,800 20,480 2020 64,000 D $80,000 $ 80% 64,000 2019 64,000 12,800 12,800 2020 21,760 (64,000*34%) Workings: The useful life of the asset has been taken as 5 years due to which the MACR rates of dep. for year 1 and 2 have been taken as 20% and 32% respectively. As the company is extremely profitable, therefore, it is assumed that full amount of the cost of the asset under section 179 can be claimed against its profits of first year itself. Hence, the maximum amount of depreciation deduction is limited to section 179 expense.