Question

In 2020, RayeAnn acquires a car for $12,600. She uses the car in her advertising business and for personal purposes. Her records indicate the car is used 70% for business and that her total annual operating expenses, including depreciation, are $4,000. Round intermediate computations and final tax liability to the nearest dollar. a. How should RayeAnn treat the operating costs of the car for tax purposes? % of RayeAnn's expenses are treated as a business expense. She can deduct $ of the cost of operating the car. Feedback Check My Work Taxpayers that use an asset for both business and personal use must allocate the expenses associated with the asset between business use and personal use. b. In 2023, RayeAnn sells the car for $5,000. Her business use for 2021 through 2023 remains at 70%, and she properly deducted $6,174 in depreciation. What is her taxable gain or loss from the sale of the car? gain for the business asset. For the personal asset, there is a loss of $ Her taxable gain or loss from the sale of the car is a(n) $ and is not deductible.

Answer 1

Answer:

a)

70% of the operating expense of the car is $2800 (4000*70%). $2800 of the operating expenses of the car can be deductible as her business expense.

30% of the operating expense of the car is $1200 (4000*30%). $1200 of the operating expenses of the car cannot be deductable as an expense because it is a personal expense

b)

Particulars	Total	Business (Total x 70%)	Personal (Total x 30%)
Selling Price	5000	3500	1500
Less: Operating expense	(12600)	(8820)	(3780)
Add: Depreciation for adjustment		6174
Gain on sale		854	(2280)

Ms. RayeAnn taxable gain on sale of the car (business portion ) is $854. The $2280 loss on sale is the personal portion of the car is non deductible peronal use loss.