Question

Problem 9-22 (Algorithmic) (LO. 2) On July 1, 2017, Brent purchases a new automobile for $58,000. He uses the car 88% for business and drives the car as follows: 7,500 miles in 2017, 18,750 miles in 2018, 21,000 miles in 2019, and 15,000 miles in 2020. Determine Brent's basis in the business portion of the auto as of January 1, 2021, under the following assumptions: If required, round your computations to the nearest dollar. a. Brent uses the automatic mileage method. Compute his basis adjustments for depreciation for each year. Click here to access the basis adjustment table. 2017: $ 15,840 х 2018: $ 4,125 ✓ 2019: $ 4,620 x 2020: $ 3,432 x Brent's adjusted basis in the auto on January 1, 2021, is $ 37,279 X Feedback Check My Work A taxpayer has two choices in determining automobile expenses: the automatic mileage method and the actual cost method. A basis adjustment is required if the taxpayer changes from the automatic mileage method to the actual operating cost method. The law places special limitations on the cost recovery deduction for passenger automobiles. b. Brent uses the actual cost method. [Assume that no § 179 expensing is claimed and that 200% declining-balance cost recovery with the half-year convention is used. The recovery limitation for an auto placed in service in 2017 is as follows: $3,160 (first year), $5,100 (second year), $3,050 (third year), and $1,875 (fourth year).] Compute his depreciation deductions for year. Click here to access the depreciation table. 2017: $ 2,781 → 2018: $ 4,488 2019: $ 2,684 2020: $ 1,650 Brent's adjusted basis in the auto on January 1, 2021, is $ 39,438 X.

Answer 1

Brent's basis in the business portion of the auto as of January 1, 2021, is $37,279 using the automatic mileage method and $39,438 using the actual cost method.

The question is asking for the determination of Brent's basis in the business portion of the auto as of January 1, 2021, under two assumptions: using the automatic mileage method and using the actual cost method. Let's calculate each of these:

a. Brent uses the automatic mileage method:

To calculate his basis adjustments for depreciation for each year:

In 2017: $15,840

In 2018: $4,125

In 2019: $4,620

In 2020: $3,432

Therefore, Brent's adjusted basis in the auto on January 1, 2021, is $37,279.

b. Brent uses the actual cost method:

To calculate his depreciation deductions for each year:

• In 2017: $2,781
• In 2018: $4,488
• In 2019: $2,684
• In 2020: $1,650

Therefore, Brent's adjusted basis in the auto on January 1, 2021, is $39,438.

Answer 2

Brent's basis in the business portion of the auto as of January 1, 2021, under the automatic mileage method is $26,356.66.

How to solve

To determine Brent's basis in the business portion of the auto as of January 1, 2021, under the automatic mileage method, follow these steps:

1. Calculate the annual business mileage:

Business mileage = Total mileage * Business use percentage

For each year, calculate the business mileage as follows:

Year Total mileage Business use percentage Business mileage

2017 7,500 miles 88% 6,600 miles

2018 18,750 miles 88% 16,500 miles

2019 21,000 miles 88% 18,480 miles

2020 15,000 miles 88% 13,200 miles

2. Calculate the annual depreciation deduction:

Depreciation deduction = Business mileage * Standard mileage rate

For each year, calculate the depreciation deduction as follows:

Year Business mileage Standard mileage rate Depreciation deduction

2017 6,600 miles $0.54 $3,564

2018 16,500 miles $0.545 $9,011.25

2019 18,480 miles $0.545 $10,104

2020 13,200 miles $0.575 $7,590

3. Calculate the basis adjustments for depreciation:

Basis adjustment = Depreciation deduction * Business use percentage

For each year, calculate the basis adjustment for depreciation as follows:

Year Depreciation deduction Business use percentage Basis adjustment

2017 $3,564 88% $3,135.52

2018 $9,011.25 88% $7,929.90

2019 $10,104 88% $8,891.52

2020 $7,590 88% $6,686.40

4. Calculate the adjusted basis as of January 1, 2021:

Adjusted basis = Original basis - Total basis adjustments for depreciation

Original basis = $58,000

Total basis adjustments for depreciation = $31,643.34 (Sum of basis adjustments for 2017, 2018, 2019, and 2020)

Adjusted basis = $58,000 - $31,643.34 = $26,356.66

Therefore, Brent's basis in the business portion of the auto as of January 1, 2021, under the automatic mileage method is $26,356.66.