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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I bought a brand new vett that is used purpose 100% on March

Customer Question

I bought a brand new vett that is used for business purpose 100%
on March 30, 2015
the undepreciated value for my trade in was 50,000
I paid an additional cash by loan 60,000
how do I compute depreciation please to get the maximum deduction?
macrus
section 179
bonus
Submitted: 9 months ago.
Category: Tax
Expert:  Lev replied 9 months ago.

Can you clarify - what exactly you purchased and how that asset is used in your business?
Also can you clarify what was your purchase price - total price - regardless if it was paid using a loan or with cash?

Customer: replied 9 months ago.
09 March 2016 02:01
I bought a brand new 2015 chevrolet corvett that is used for business purpose 100%
on March 30, 2015 for this example please lets just assume that 100% is correct here, i
do have some personal use and expect to write down the depreciation for personal use, but
i do not know how to caculate the income tax deprecation. this is what I need help with.
the undepreciated value for my old car trade in was 50,000 (original cost 70k depreciation used 20k in 2014)
I paid an additional cash by loan 60,000 (cash that means dollars)
i guess the total price was 110,000
how do I compute depreciation please to get the maximum deduction for each of the following?
macrus
section 179
bonus
Expert:  Lev replied 9 months ago.

Ok - so you trade in your old car - correct?
So I want to be clear - if you report the sale of the old car and purchase of a new car SEPARATELY

or

you want the gain realized on the old car to be deferred.

.

If you have two separate transactions - your purchase price is $110,000

Assuming placed in service on March 30, 2015 - first quarter

Depreciation table to be used - see page 72

Table A-2. 3-, 5-, 7-, 10-, 15-, and 20-Year Property Mid-Quarter Convention Placed in Service in First Quarter

That will be 5 year property - so first year depreciation is 35% or $38,500

https://www.irs.gov/pub/irs-pdf/p946.pdf

However because of section 280F limitation - see page 62

depreciation for the first year the car is placed in service is limited by $11,160 if you choose section 179 deduction or $3,160 without section 179.

In additional

If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12.

So these limits are reduced as 10/12

The actual limit woudl be

$11,160 * 10/12 = $9300 if you choose section 179 deduction.

.

If you choose bonus depreciation - section 280F limit woudl not apply and you may deduct 50% of the cost or $55,000.

.

On your old car - you will recognize neither the gain nor loss.

50,000(selling price) MINUS $50,000 (adjusted basis = 70k purchase price minus accumulated depreciation 20k) - so the gain is zero.

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