Final answer:
The statement is false; if a vehicle's business use drops below 50% in subsequent years, excess depreciation must be recaptured and included in income.
Step-by-step explanation:
The statement 'A used $35,000 automobile that is used 100% for business is placed in service in 2015. If the automobile fails the 50% business usage test in the second year, no cost recovery will be recaptured.' is False. If a taxpayer claims a depreciation deduction for a vehicle for business use based on the percentage of business use and that percentage drops to 50% or less in subsequent years, the taxpayer must recapture any excess depreciation. This means the taxpayer must include in income the difference between the depreciation amounts taken and the amounts that would have been allowable had the business use always been 50% or less.