Question

On June 1, 2019, 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. The cost recovery deduction for 2019 would be:

a.$0.
b.$4,800.
c.$6,000.
d.$8,000.
e.$10,000.

Answer 1

Eddie's cost recovery deduction for the automobile used 60% for business would be $6,000 for the year 2019, calculated as 60% of the $10,000 maximum first-year depreciation for cars.

Step-by-step explanation:

The question relates to the calculation of the cost recovery deduction for a business-use vehicle in accordance with tax regulations.

When Eddie places a new automobile costing $40,000 in service and uses it 60% for business purposes, the deduction must be calculated based on the business use percentage of the vehicle's cost.

As Eddie is not taking additional first-year depreciation, the standard IRS depreciation method will be used to calculate the deduction.

For 2019, the maximum first-year depreciation deduction for cars is $10,000. Since the business use is 60%, Eddie can claim 60% of the maximum deduction. Multiplying the maximum deduction by the business-use percentage:

$10,000 x 60% = $6,000

Therefore, the correct cost recovery deduction for Eddie in 2019 is $6,000, which corresponds to option (c).