Question

Modified Accelerated Cost Recovery System (MACRS), Listed Property, Limitation on Depreciation of Luxury Automobiles
(LO 7.4, 7.6, 7.7)

On September 14, 2017, Jay purchased a passenger automobile that is used 75 percent in his accounting business. The automobile has a basis for depreciation purposes of $43,000, and Jay uses the accelerated method under MACRS. Jay does not elect to expense under section 179.

Click here to access the depreciation table and click here to access the annual automobile depreciation limitations.

a. Calculate Jay's depreciation deduction for 2017 assuming bonus depreciation.
$

b. Assuming the same business percentage (75 percent) in 2018, calculate Jay's depreciation deduction for 2018.
$

Answer 1

Part A

Passenger automobile is a 5 year property.

MACRS depreciation (half-year convention): $43,000 x 20% = $8600

Depreciation limited to business-usage percentage: 8600 x 75% = 6450

Depreciation further limited to maximum passenger automobile depreciation allowed: 3160 x 75% = 2370

Therefore

Jay's depreciation deduction for 2017 assuming bonus depreciation = 3160*75% = 2370

Part B

MACRS depreciation (half-year convention): $43,000 x 32% = $13760

Depreciation limited to business-usage percentage: 13760 x 75% = 10320

Depreciation further limited to maximum luxury automobile depreciation allowed: 5100 x 75% = 3825

Therefore,

Jay's depreciation deduction for 2018 assuming bonus depreciation = 5100*75% = 3825