Problem 8-8 Modified Accelerated Cost Recovery System (MACRS), Election to Expense, Listed Property, Limitation on Depreciation of Luxury Automobiles (LO 8.2, 8.3, 8.4, 8.5)

During 2020, William purchases the following capital assets for use in his catering business:

New passenger automobile (September 30)	$54,000
Baking equipment (June 30)	7,000

Assume that William decides to use the election to expense on the baking equipment (and has adequate taxable income to cover the deduction) but not on the automobile (which has a 5-year recovery period), and he also uses the MACRS accelerated method to calculate depreciation but elects out of bonus depreciation.

Click here to access the depreciation table and click here to access the annual automobile depreciation limitations.

Calculate William's maximum depreciation deduction for 2020, assuming he uses the automobile 100 percent in his business. $___________

Problem 8-8 (Algorithmic) Modified Accelerated Cost Recovery System (MACRS), Election to Expense, Listed Property, Limitation on Depreciation of Luxury Automobiles (LO 8.2, 8.3, 8.4, 8.5)

During 2020, William purchases the following capital assets for use in his catering business:

New passenger automobile (September 30)	$58,200
Baking equipment (June 30)	17,460

Assume that William decides to use the election to expense on the baking equipment (and has adequate taxable income to cover the deduction) but not on the automobile (which has a 5-year recovery period), and he also uses the MACRS accelerated method to calculate depreciation but elects out of bonus depreciation. Assume he has adequate taxable income.

Click here to access the depreciation table and click here to access the annual automobile depreciation limitations.

Calculate William's maximum depreciation deduction for 2020, assuming he uses the automobile 100 percent in his business. $__________

HERE ARE THE TABLES TO USE FOR SOLVING THE ANSWERS:

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ANNUAL AUTOMOBILE DEPRECIATION LIMITATIONS Year of Use 2019 and 2020 Limits Year 1 $18,100* Year 2 16.100 Year 3 9,700 Year 4 (and subsequent 5,760 years until fully depreciated) *Additional bonus depreciation of $8,000 is included in this amount. TABLE 8.2 Recovery Year 1 2 3 20-Year (150% DB) 3.750 7.219 6.677 6.177 5.713 5.285 4.888 4.522 4 Accelerated Depreciation for Personal Property Assuming Half-Year Convention (For Property Placed in Service after December 31, 1986) 3-Year 5-Year 7-Year 10-Year 15-Year (200% DB) (200% DB) (200% DB) (200% DB) (150% DB) 33.33 20.00 14.29 10.00 5.00 44.45 32.00 24.49 18.00 9.50 14.81 % 19.20 17.49 14.40 8.55 7.41 11.52 12.49 11.52 7.70 11.52 8.93 9.22 6.93 5.76 8.92 7.37 6.23 8.93 6.55 5.90 * 4.46 6.55 5.90 6.56 5.91 6.55 5.90 3.28 5.91 5.90 5.91 5.90 5.91 2.95 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 4.462 * 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 2.231 20 21 *Switch to straight-line depreciation