1. Pennys Mercedes C350, which she uses exclusively in her cosmetics business, was purchased on July 1 (of two years ago) for $49,000. No trade-in was involved, and the vehicle is classified as a passenger car (not a truck or van) for income tax purposes. Penny did not claim any Section 179 or bonus depreciation. She does, however, use the actual operating cost method for claiming car expenses. Under this method, she calculates depreciation using 200% declining-balance with a half-year convention, subject to limitations for automobiles. The expenses for operating the Mercedes during the current tax year appear below:

Gasoline	$3,220
Oil changes and lubrication	550
Auto insurance	2,800
Repairs	1,400

The Mercedes was driven a total of 16,500 business miles during the current tax year (mileage was evenly distributed throughout the year). All other miles (including those discussed in Item #13 below) totaled 2,000 miles.

Complete Leonard and Pennys Federal income tax return for the current tax year.