Question

On October 15, 2018, Jon purchased and placed in service a used car. The purchase price was $25,000. This was the only business use asset Jon acquired in 2018. He used the car 80% of the time for business and 20% for personal use. Jon used the regular MACRS method. Calculate the total cost recovery deduction Jon may take for 2018 with respect to the car.

Answer 1

Answer:

The total cost recovery deduction Jon may take for 2018 with respect to the car is $1000

Explanation:

As per MACRS (modified accelerated cost recovery system), cars are in the automobiles category which has 5-years convention.

Hence, car will be depreciated at 20% in the first year. But in the case of used cars first depreciation is not applicable

In this case, MACRS statutory percentage is used as follows:

1. Cost Recovery Limit= Asset value * Statutory Percentage * Mid-quarter conversion

=25000*5%

=$1,250 (maximum limit= $3,160)

The Cost recovery is $1,250

2. Cost recovery limit= Cost recovery limit - Personal use

=1250 - (1250*20%)

=1250-(250)

=$1000

Hence, the total deduction for Jon is $1,000

The used car is not eligible for additional first year depreciation

Annual limit on cost recovery for automobile for the year is limited to $3,160.