Question

Part I: On July 10, 2019 Ariff places in service a new SUV that cost $70,000 and weighed 6,300 pounds. The SUV is used 100% for business. Determine Ariff's maximum deduction for 2019, assuming Ariffs section 179 business income is $110,000. Ariff does not take additional first year depreciation.

A. $2,960   B. $25,000 C. 34,400 D. $70,000

Part II: On July 17, 2018, Kevin places in service a used automobile that cost $25,000. The car is used 80% for business and 20% for personal use. In 2019, he used the automobile 40% for business and 60% for personal use. Determine the cost recovery recapture for 2019.

A. $0 B. $528 C. $2,000 D. $2,500

Please show how you get the answers. Thanks!

Answer 1

Answer

**** Part 1 - $34000

Explanation -

Because the SUV weighs over 6000 pounds, it is not subject to the statutory dollar limits on luxury automobiles.

Under section 179 expensing (limited to $25000 for SUVs)

= $25000

Regular MACRS {($70000 - $25000) * .20}

= 9000

Ariff's maximum deduction for 2019 would be = $25000 +$9000 = $34000
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**** Part II - (B) $528

Explanation -

Cost recovery recaptures for 2019 -

MACRS ($25000 * .20) = $5000 (limited to $3160) so $3160 * 80% (business use) = $2528

Straight line ($25000 *.10) = $2500 (limited to $3160) so $2500 * 80% = $2000

Cost recovery capture for 2019 = $2528 - $2000 = $528