Question

On June 1, 2014, Eddie places in service a new automobile that cost $40,000. The car is used 60% for business and 40% for personal use. (Assume this percentage is maintained for the life of the car.) Eddie does not take additional first-year depreciation. Determine the cost recovery deduction for 2014.

1) $1,776
2) $6,696
3) $8,000
4) $1,896
5) None of these choices are correct.

Answer 1

The cost recovery deduction for a new automobile used 60% for business and placed into service in 2014 would be 60% of the first-year MACRS depreciation, amounting to $1,896.

Step-by-step explanation:

The question involves determining the cost recovery deduction for a new automobile that Eddie put into service, with the car being used 60% for business and 40% for personal use. According to the Modified Accelerated Cost Recovery System (MACRS), the first-year depreciation for a new car placed in service in 2014 under the half-year convention is $3,160.

However, since the car is used 60% for business, the business portion of the cost is 60% of $40,000, which is $24,000. Applying the first-year depreciation to the business use portion, we get 60% of $3,160, which is $1,896.

Therefore, the cost recovery deduction that Eddie can claim for 2014 is $1,896.