Question

I want to know how to calculate Cost recovery deduction for a Luxury car as well as a normal car for 1st and 2nd year? where there is a limitation for deduction over the year for cost recovery deduction.

new car purchased with a cost of $25000 on May 31,2020. in the year 2020, the car was used 90% for business, 5% for production and 5% for personal use. In 2021 the usage changed to 30% for business, 30% for production of income and 40% for personal use. The owner did not elect for immediate expensing under sec 179. He elects not to take additional first year depreciation. The luxury automobile limitation: 1st year $10100, 2nd year $16,100.

Answer 1

a.)	MACRS cost recovery depreciation for 2020	5,000	(25,000 x 20% )
	Depreciation in 1st year is limited to	10,100
	Cost recovery deduction for 1st year	$ 4,750	( 5,000 x ( 90% + 5% ) )
b.)	MACRS cost recovery depreciation for 2021	5,000	(25,000 x 20% )
	Depreciation in 2nd year is limited to	16,100
	Cost recovery deduction for 2nd year	$ 3,000	( 5,000 x ( 30% + 30% ) )