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On May 28, 2021, Mary purchased and placed in service a new $60,000 car. The car was used 60% for business, 20% for production of income, and 20% for personal use in 2021. In 2022, the usage changed to 40% for business, 30% for production of income, and 30% for personal use. Mary did not elect immediate expensing under § 179. She did not claim any available additional first-year depreciation. Compute Mary's cost recovery deduction for 2021 and 2022 and any cost recovery recapture for 2022.

Respuesta :

Mary's cost recovery deduction for 2021 and 2022 include $8000 and $8400 while the cost recovery recapture for 2022 is $3200.

The MACRS cost recovery for 2021 will be calculated thus:

= $60000 × 20%

= $12000

Since the depreciation for luxury automobile is limited to $10000, the the cost recovery deduction for 2021 will be:

= $10000 × (60% + 20%)

= 80% × $10000.

= $8000

Mary's cost recovery deduction for 2022 will be;

= (40% + 39%) × $12000

= 70% × $12000

= $8400

The cost recovery recapture for 2022 will be calculated thus:

Cost recovery deduction = $8000

The straight-line depreciation will be:

= 10% × $60000 = $6000

The proportionate depreciation for business and production will be:

= (60% + 20%) × $6000

= 80% × $6000

= $4800

Therefore, the cost recovery recapture in 2022 will be:

= $8000 - $4800

= $3200

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