Question

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.) The vehicle cost $82,000, and she used it 20 percent for business.

Year Depreciation deduction

2019 $

2020 $3,200 (This answer is correct).

Answer 1

Half-Year Convention – In general, a half-year convention applies to personal property, under which such property placed in service or disposed of during a taxable year, is treated as having been in service or disposed of at the midpoint of the year. In other words, if a taxpayer places an asset in-service during the beginning of the year, the appropriate MACRS treatment would still require only a half year of depreciation expense to be taken against taxable income.
								5-Year 200% Class – ADR midpoints of more than 4 years and less than 10 years. Includes automobiles, light trucks, computers, qualifying solar equipment and copiers.
Part I
1. MACRS system (GDS or ADS)	GDS
2. Property class	5
3. Date placed in service	11/07/1905
4. Recovery period	5
5. Method and convention	200%DB/Half-Year
6. Depreciation rate (from tables)	0.1429
Cost	82000	A
Business Use	20%	B
Value	16400	C =Axb
	Purchase Price (P)	16,400
	Salvage Value (Sn)	0
	Depreciation Period (n)	5
	Depreciation Method	DB	DB Factor	200%
Depreciation Schedule			[42]
Year	Depreciation	Cumulative	Book Value
1	6,560.00	6,560.00	9,840.00
2	3,936.00	10,496.00	5,904.00
3	2,361.60	12,857.60	3,542.40
4	1,416.96	14,274.56	2,125.44
5	850.18	15,124.74	1,275.26