Question

1. In August 2019, Judge Marshall purchased a 2020 Bentley Mulsanne for $320,000. In order to purchase the Bentley, the Judge made a 25% down payment and signed a note to finance the balance of the purchase price over 4 years at a 5% rate of interest. According to his mileage log, the business usage for the Bentley in 2019 was 80%. All of his business usage related to his bar review course sole proprietorship. What is the amount of depreciation, if any, the Judge can claim on his Bentley in 2019? (explain the proper tax treatment and cite tax law authorities). (Assume U.S tax code)

Answer 1

Section 179 of the US Tax Code allowed company to deduct the certain type of equipment ( qualifying Equipment) purchased or financed during the tax Year.That means if you buy a qualifying equipment , you can dedcut the full pruchase price amount from your gross income.

Vehicle used in business qualify for the dedcution under section 179.deduction for business vehicle is same whether they purchased , finance or leased.

Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Because the benefits last longer than 1 year, you generally can’t deduct a capital expense. However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year.

Condition on usage to Avail section 179 Benefit

You must use the property more than 50% for business to claim any section 179 deduction. If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use

Depreciation limits on cars, trucks, and vans.

For 2019, the first-year limit on depreciation, special depreciation allowance, and section 179 deduction for vehicles acquired before September 28, 2017, and placed in service during 2019 is $14,900. The first-year limit on depreciation, special depreciation allowance, and section 179 deduction for vehicles acquired after September 27, 2017, and placed in service during 2019 is $18,100.

Maximum depreciation allowed in year 2019 =$18,100*80/100

= $14,480