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
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 doesnt want to take bonus depreciation for 2019 or 2020) in the following alternative scenarios (assuming half-year convention for all): (Use MACRS Table 1, Table 2, and Exhibit 10-10.)
Table 1 MACRS Half-Year Convention
| Depreciation Rate for Recovery Period | ||||||
|---|---|---|---|---|---|---|
| 3-Year | 5-Year | 7-Year | 10-Year | 15-Year | 20-Year | |
| Year 1 | 33.33% | 20.00% | 14.29% | 10.00% | 5.00% | 3.750% |
| Year 2 | 44.45 | 32.00 | 24.49 | 18.00 | 9.50 | 7.219 |
| Year 3 | 14.81 | 19.20 | 17.49 | 14.40 | 8.55 | 6.677 |
| Year 4 | 7.41 | 11.52 | 12.49 | 11.52 | 7.70 | 6.177 |
| Year 5 | 11.52 | 8.93 | 9.22 | 6.93 | 5.713 | |
| Year 6 | 5.76 | 8.92 | 7.37 | 6.23 | 5.285 | |
| Year 7 | 8.93 | 6.55 | 5.90 | 4.888 | ||
| Year 8 | 4.46 | 6.55 | 5.90 | 4.522 | ||
| Year 9 | 6.56 | 5.91 | 4.462 | |||
| Year 10 | 6.55 | 5.90 | 4.461 | |||
| Year 11 | 3.28 | 5.91 | 4.462 | |||
| Year 12 | 5.90 | 4.461 | ||||
| Year 13 | 5.91 | 4.462 | ||||
| Year 14 | 5.90 | 4.461 | ||||
| Year 15 | 5.91 | 4.462 | ||||
| Year 16 | 2.95 | 4.461 | ||||
| Year 17 | 4.462 | |||||
| Year 18 | 4.461 | |||||
| Year 19 | 4.462 | |||||
| Year 20 | 4.461 | |||||
| Year 21 | 2.231 | |||||
TABLE 2a MACRS Mid-Quarter Convention: For property placed in service during the first quarter
| Depreciation Rate for Recovery Period | ||
|---|---|---|
| 5-Year | 7-Year | |
| Year 1 | 35.00% | 25.00% |
| Year 2 | 26.00 | 21.43 |
| Year 3 | 15.60 | 15.31 |
| Year 4 | 11.01 | 10.93 |
| Year 5 | 11.01 | 8.75 |
| Year 6 | 1.38 | 8.74 |
| Year 7 | 8.75 | |
| Year 8 | 1.09 | |
TABLE 2b MACRS Mid-Quarter Convention: For property placed in service during the second quarter
| Depreciation Rate for Recovery Period | ||
|---|---|---|
| 5-Year | 7-Year | |
| Year 1 | 25.00% | 17.85% |
| Year 2 | 30.00 | 23.47 |
| Year 3 | 18.00 | 16.76 |
| Year 4 | 11.37 | 11.97 |
| Year 5 | 11.37 | 8.87 |
| Year 6 | 4.26 | 8.87 |
| Year 7 | 8.87 | |
| Year 8 | 3.34 | |
TABLE 2c MACRS Mid-Quarter Convention: For property placed in service during the third quarter
| Depreciation Rate for Recovery Period | ||
|---|---|---|
| 5-Year | 7-Year | |
| Year 1 | 15.00% | 10.71% |
| Year 2 | 34.00 | 25.51 |
| Year 3 | 20.40 | 18.22 |
| Year 4 | 12.24 | 13.02 |
| Year 5 | 11.30 | 9.30 |
| Year 6 | 7.06 | 8.85 |
| Year 7 | 8.86 | |
| Year 8 | 5.53 | |
TABLE 2d MACRS-Mid Quarter Convention: For property placed in service during the fourth quarter
| Depreciation Rate for Recovery Period | ||
|---|---|---|
| 5-Year | 7-Year | |
| Year 1 | 5.00% | 3.57% |
| Year 2 | 38.00 | 27.55 |
| Year 3 | 22.80 | 19.68 |
| Year 4 | 13.68 | 14.06 |
| Year 5 | 10.94 | 10.04 |
| Year 6 | 9.58 | 8.73 |
| Year 7 | 8.73 | |
| Year 8 | 7.64 | |
EXHIBIT 10-10 Automobile Depreciation Limits
| Year Placed in Service | ||||
|---|---|---|---|---|
| 2019* | 2018 | 2017 | 2016 | |
| Recovery Year 1 | 10,000** | 10,000* | 3,160* | 3,160* |
| Recovery Year 2 | 16,000 | 16,000 | 5,100 | 5,100 |
| Recovery Year 3 | 9,600 | 9,600 | 3,050 | 3,050 |
| Recovery Year 4 and after | 5,760 | 5,760 | 1,875 | 1,875 |
*As of press date, the IRS had not released the 2019 limitations for automobiles, so throughout the chapter we use the same limitations as in 2018 for 2019. **$8,000 additional depreciation is allowed when bonus depreciation is claimed [168(k)(2)(F)].
d. The vehicle cost $80,000, and she used it 80 percent for business. She sold it on March 1 of year 2.
| Year | Depreciation deduction |
| 2019 | |
| 2020 |
e. The vehicle cost $80,000, and she used it 20 percent for business.
| Year | Depreciation deduction |
| 2019 | |
| 2020 |
f. The vehicle cost $80,000 and is an SUV that weighs 6,500 pounds. Business use was 100 percent.
| Year | Depreciation deduction |
| 2019 | |
| 2020 |
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Financial Accounting
Authors: Jane L. Reimers
1st Edition
0131492012, 978-0131492011
