Question

On June 1, 2014, Sierra places in service a new automobile that cost $21,000. The car is used 70% for business and 30% for personal use. (Assume this percentage is maintained for the life of the car.) She does not take additional first-year depreciation. Determine the cost recovery deduction for 2015.

1) $3,160
2) $6,720
3) $3,570
4) $2,212
5) None of these choices are correct.

Answer 1

The cost recovery deduction for Sierra's car used 70% for business in the year 2015 is $4,704, calculated as 32% of the business-use portion of the car's original cost ($14,700).

Step-by-step explanation:

The student has asked about determining the cost recovery deduction for a car used 70% for business purposes for the year 2015. The car was placed in service in June 1, 2014, and the cost was $21,000. Since the car is used 70% for business, we calculate the business portion of the car's cost by multiplying $21,000 by 70%, which gives us $14,700. According to the Modified Accelerated Cost Recovery System (MACRS), a vehicle falls under the 5-year property class. For the second year, the MACRS depreciation rate is 32%. Thus, the car's cost recovery deduction for the year 2015 would be 32% of $14,700, which is $4,704.