Question

(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.) b. The vehicle cost $80,000, and business use is 100 percent. Answer is complete but not entirely correct. Year 2019 Depreciation deduction 16,000 X 25,600 2020

Answer 1

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Answers are highlighted in yellow: Solution: b) Year Depreciation deduction 2019 $ 10,000 2020 $ 16,000 Working: Assumed no bonus: 1 Original cost or basis of auto 2 MACRS depreciation rate for 5 year, half year convention 3 Full MACRS depreciation 4 Maximum auto depreciation as per 2018 rule Lower of 3 or 4 at 100% business use Business use percentage Maximum Depreciation deduction 2019 2020 $ 80,000 $ 80,000 20% 32% $ 16,000 $ 25,600 $ 10,000 $ 16,000 $ 10,000 $ 16,000 100% 100% $ 10,000 $ 16,000

Year Depreciation deduction 2019 $ 8,000 2020 $ 12,800 Working: Assumed no bonus: 1 Original cost or basis of auto 2 MACRS depreciation rate for 5 year, half year convention 3 Full MACRS depreciation 4 Maximum auto depreciation as per rule Lower of 3 or 4 at 100% business use Business use percentage Maximum Depreciation deduction I 2019 2020 $ 80,000 $80,000 20% 32% $ 16,000 $ 25,600 $ 10,000 $ 16,000 $ 10,000 $ 16,000 80% 80% $ 8,000 $12,800 Year Depreciation deduction 2019 $ 10,000 2020 $ 16,000 Working: Assumed no bonus: Vehicle weighing above 6000 pound: 1 Original cost or basis of auto 2 MACRS depreciation rate for 5 year, half year convention 3 Full MACRS depreciation 4 Maximum auto depreciation as per rule Lower of 3 or 4 at 100% business use Business use percentage Maximum Depreciation deduction 2019 2020 $ 80,000 $80,000 20% 32% $ 16,000 $ 25,600 $ 10,000 $ 16,000 $ 10,000 $ 16,000 100% 100% $ 10,000 $ 16,000