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 $32,800 and business use is 100 percent (ignore §179 expense).

b. The vehicle cost $84,000, and business use is 100 percent.

c. The vehicle cost $84,000, and she used it 80 percent for business.

d. The vehicle cost $84,000, and she used it 80 percent for business. She sold it on March 1 of year 2.

e. The vehicle cost $84,000, and she used it 20 percent for business.

f. The vehicle cost $84,000, and is an SUV that weighs 6,500 pounds. Business use was 100 percent.

Answer 1

Answer (a) The vehicle cost $328000 and business use is 100 percent (ignore §179 expense). Original basis of auto in 2019 as per the given problem - $32800. Original basis of auto in 2020 as per the given problem - $15,000. Assuming half-year convention for all MACRS depreciation in 2019 (@ 20% of $32800) - $6560  MACRS depreciation in 2020 (@ 32% of $32800) - $10496 Maximum auto depreciation for year 2019 as per luxury auto limits - $3,060 Maximum auto depreciation for year 2020 as per luxury auto limits - $4,900 From MACRS depreciation and Maximum auto depreciation calculated above for each year, the lower value of the two calculations gives us the depreciation expense for that particular year. Therefore, the depreciation expense for year 2019 is $3060. Similarly, the depreciation expense for the year 2020 is $4,800.

(b) The vehicle cost $84000, and business use is 100 percent. Original basis of auto in 2019 as per the given problem - $84000. Original basis of auto in 2020 as per the given problem - $40,000. Assuming half-year convention for all MACRS depreciation in 2019 (@ 20% of $84000) - $16800 MACRS depreciation in 2020 (@ 32% of $84000) - $26880 Maximum auto depreciation for year 2019 as per luxury auto limits- $3,060 Maximum auto depreciation for year 2020 as per luxury auto limits - $4,900 From MACRS depreciation and Maximum auto depreciation calculated above for each year, the lower value of the two calculations gives us the depreciation expense for that particular year. Therefore, the depreciation expense for year 2019 is $8000. Similarly, the depreciation expense for the year 2020 is $12800