Question

Jabari Johnson is considering acquiring an automobile at the beginning of 2017 that he will use 100% of the time as a taxi. The purcahse price of the automobile is $35,000. Johnson has heard of cost recovery limits on automobiles and wants to know how much of the $35,000 he can deduct in the first year. Write a letter to Jabari in which you present your calculations. Also prepare a memo for the tax files, summarizing your analysis. Johnson's address is 100 Morningside, Clinton MS 39058. *Taxi's are excpetions and don't follow "luxury vehicle" rules*

Answer 1

Answer

The car will be used in the form of a taxi, this passenger is not subject to the cost recovery charges placed on the automobile. This $ 35,000 recovery assumes that before considering this recovery, your income from your taxi business is at least $ 35,000 and the maximum allowable amount is to be spent under the election 179.

Therefore, cost recovery limitation for passenger automobiles dont apply on it. Hence,johnson can elect section 179 expensing.

December 20, 2017

Mr. John Johnson

100 MorningsideClinton, MS 39058

Dear Mr. Johnson:

I am responding to your inquiry concerning the amount of cost recovery you may deduct in the first year of operation of a new taxi.If the automobile is purchased at the beginning of 2017 for $35,000, the total cost recovery deductions in the first year would be $35,000.

Because the car will be used as a taxi, it is not subject to the cost recovery limitations imposed on passenger automobiles. This $35,000 cost recovery assumes that your income from your taxi business before considering this cost recovery would be at least $35,000 and an election is made under § 179 of IRS to expense the maximum allowable amount.

If you need additional information or need clarification of deduction, please contact me.

Sincerely yours,

John J. Jones, CPA

Partner

TAX MEMO:

Sincerely yours,

John J. Jones, CPA Partner

TAX FILE MEMORANDUM

December 31, 2017

FROM:John J. Jones

SUBJECT:John Johnson: Calculations for cost recovery in year of acquisition

Facts:John Johnson is considering purchasing an automobile at the beginning of 2017 tobe used 100% as a taxi. The cost of the automobile is $35,000. John wants to know thetotal recovery for the year of acquisition of the car.

Calculations:Because the automobile will be used as a taxi, it is not subject to the costrecovery limitations for passenger automobiles. Therefore, John can elect § 179expensing. In deducting the §179 amount of $35,000, the assumption is made that John’sincome from the taxi business before considering the § 179 expense will equal or exceed$35,000.

Please contact me, if you need more info on deducting depreciation expenses.

Sincerely,

J.john, CPA

Partner