For a purchase of a new passenger automobile on august 17, 2022, for $30,000 which is used 40% for business and 60% for personal use during the year, cost recovery deduction for the car for 2022 is $1,200. (Option A)
Cost recovery refers to the business ability to recover (deduct) their investment costs and plays an important role in establishing a business' tax base and can influence investment decisions. An automobile is a listed property which refers to a specific form of depreciable property that may be utilized primarily for business purposes. In order for a property to be considered listed property, it must be used for company’s business more than 50%. However, as the automobile purchased is used 40% for business, it does not qualify as listed property, neither 179 expensing (that allows businesses to write off the entire cost of an eligible asset in the first year) or additional first year depreciation can be taken. As a general rule, an automobile loses 10% of its value (depreciation) as soon as it is driven. Hence, the depreciation would be $30,000*0.1 = $3000. The cost recovery deduction would be $3000*0.4 = $1200.
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