1 answer

Lina purchased a new car for use in her business during 2019. The auto was the...

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)

a. The vehicle cost $$31,600 and business use is 100 percent (ignore §179 expense).

year      Depreciation expense

2019

2020

b. The vehicle cost $78,000, and business use is 100 percent.

year          Depreciation expense

2019

2020

c. The vehicle cost $78,000, and she used it 80 percent for business.

year      Depreciation

2019

2020

d. The vehicle cost $ $78,000, and she used it 80 percent for business. She sold it on March 1 of year 2.

year      Depreciation

2019

2020

e. The vehicle cost $ $78,000, and she used it 20 percent for business.

Year   Depreciation expense

2019

2020

f. The vehicle cost $ $78,000, and is an SUV that weighed 6,500 pounds. Business use was 100 percent.

Year         Depreciation

2019

2020

Table 1 MACRS Half-Year Convention

Depreciation Rate for Recovery Period
3-Year 5-Year 7-Year 10-Year 15-Year 20-Year
Year 1   33.33%   20.00%   14.29%   10.00%   5.00%   3.750%
Year 2 44.45 32.00 24.49 18.00 9.50 7.219
Year 3 14.81 19.20 17.49 14.40 8.55 6.677
Year 4 7.41 11.52 12.49 11.52 7.70 6.177
Year 5 11.52 8.93 9.22 6.93 5.713
Year 6 5.76 8.92 7.37 6.23 5.285
Year 7 8.93 6.55 5.90 4.888
Year 8 4.46 6.55 5.90 4.522
Year 9 6.56 5.91 4.462
Year 10 6.55 5.90 4.461
Year 11 3.28 5.91 4.462
Year 12 5.90 4.461
Year 13 5.91 4.462
Year 14 5.90 4.461
Year 15 5.91 4.462
Year 16 2.95 4.461
Year 17 4.462
Year 18 4.461
Year 19 4.462
Year 20 4.461
Year 21 2.231

TABLE 2a MACRS Mid-Quarter Convention: For property placed in service during the first quarter

Depreciation Rate for Recovery Period
5-Year 7-Year
Year 1 35.00% 25.00%
Year 2 26.00 21.43
Year 3 15.60 15.31
Year 4 11.01 10.93
Year 5 11.01 8.75
Year 6 1.38 8.74
Year 7 8.75
Year 8 1.09

TABLE 2b MACRS Mid-Quarter Convention: For property placed in service during the second quarter

Depreciation Rate for Recovery Period
5-Year 7-Year
Year 1 25.00% 17.85%
Year 2 30.00 23.47
Year 3 18.00 16.76
Year 4 11.37 11.97
Year 5 11.37 8.87
Year 6 4.26 8.87
Year 7 8.87
Year 8 3.34

TABLE 2c MACRS Mid-Quarter Convention: For property placed in service during the third quarter

Depreciation Rate for Recovery Period
5-Year 7-Year
Year 1    15.00%    10.71%
Year 2 34.00 25.51
Year 3 20.40 18.22
Year 4 12.24 13.02
Year 5 11.30 9.30
Year 6 7.06 8.85
Year 7 8.86
Year 8 5.53

TABLE 2d MACRS-Mid Quarter Convention: For property placed in service during the fourth quarter

Depreciation Rate for Recovery Period
5-Year 7-Year
Year 1      5.00%      3.57%
Year 2 38.00 27.55
Year 3 22.80 19.68
Year 4 13.68 14.06
Year 5 10.94 10.04
Year 6 9.58 8.73
Year 7 8.73
Year 8 7.64

EXHIBIT 10-10 Automobile Depreciation Limits

Year Placed in Service
2019* 2018 2017 2016
Recovery Year 1 10,000** 10,000*   3,160*   3,160*
Recovery Year 2 16,000 16,000 5,100 5,100
Recovery Year 3 9,600 9,600 3,050 3,050
Recovery Year 4 and after 5,760 5,760 1,875 1,875

*As of press date, the IRS had not released the 2019 limitations for automobiles, so throughout the chapter we use the same limitations as in 2018 for 2019.
**$8,000 additional depreciation is allowed when bonus depreciation is claimed [§168(k)(2)(F)].


Answers

Please find below table useful to compute desired results: -

C G H I J K L M N b A B 1 Particulars given 2 a Vehicle Cost 31600 3 Business use =100/100 4 6. Vehicle cost 78000 5 Business

End results would be as follows: -

C D E F I J K L M N A B 1 Particulars given 2 a. Vehicle Cost 31,600 3 Business use 100% 4 b. Vehicle cost 78.000 5 Business

Please ask multiple questions separately.

.

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