Question

James purchased a used truck in February, two years ago, for his flower shop to make deliveries. He purchased the truck for 8,029. He is selling the truck in July for 6,073. The truck weighs 4,500 lbs and was designed specifically for the flower shop. What is his depreciation for his truck?

(This is all the information provided in the question. The answer is 771 I just want to know how to get to that answer)

Answer 1

We can summarize the above facts as below:-

Purchase price of the truck = $8,029

Purchase date = February Year 1 (This has been assumed as Year 1 for easier identification purposes)

Sale Date = July Year 3

Weight of the truck = 4,500 lbs

Based on IRS Publication 946,

"A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and high- ways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans"

The Light General Purpose trucks (actual weight less than 13,000 pounds) have been classifed as a 5 year MACRS asset.

James purchase of truck qualifies for depreciation under the MACRS 5 year property.

Hence, the depreciation for James, during the Year 3, can be calculated as follows

Depreciation = Cost of the truck * Depreciation %

Per the observation of the MACRS table - 5 Years asset, the Depreciation percentage (Half Year convention) for the asset is 19.20%. However, since James as sold the asset during Year 3, IRS states that , companies can charge only half a year depreciation during the year of sale. Hence , we can calculate the Depreciation as follows :-

$8,029 * 19.20% * 1/2(this is being halved, because it is being sold during the year)

=$771

Depreciation on the truck = $771