Question

On April 1, 2014, Antoinette purchases a new automobile for $56,000. She uses the car 90% for business and drives the car as follows: 18,000 miles in 2014, 23,000 miles in 2015, 26,000 miles in 2016, and 21,000 miles in 2017. Antoinette is self-employed.

Determine Antoinette's basis in the business portion of the auto as of January 1, 2018, under the following assumptions:

If required, carry out computations to two decimal places and then round your final answer to the nearest dollar.

a. Antoinette uses the automatic mileage method.

Compute her basis adjustments for depreciation for each year.

2014: $______

2015: $______

2016: $______

2017: $______

Antoinette's adjusted basis in the auto on January 1, 2018, is $_______

b. Antoinette 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. Assume the recovery limitation for 2014 is as follows: $3,160 (first year), $5,100 (second year), $3,050 (third year) and $1,875 (fourth year).]

Compute her depreciation deductions for year.

2014: $_______

2015: $_______

2016: $_______

2017: $_______

Antoinette's adjusted basis in the auto on January 1, 2018, is $_______

Answer 1

a. Compute annual depreciation deduction and adjusted basis under automatic mileage method as follows:

Year	Miles		Rate per Mile		Amount		Usage		Depreciation Deduction
2014	18000	×	$0.22	=	3960	×	90%	=	$3,564
2015	23000	×	$0.24	=	5520	×	90%	=	$4,968
2016	26000	×	$0.24	=	6240	×	90%	=	$5,616
2017	21000	×	$0.25	=	5250	×	90%	=	$4,725
Total									$18,873

Adjusted basis in the auto = $31,527 (($56,000 × 90%) - $18,873)

b. Compute annual depreciation deduction and adjusted basis suing actual cost method as follows:

Year	Amount		Usage		Depreciation Deduction
2014	$3,160	×	90%	=	$2,844
2015	$5,100	×	90%	=	$4,590
2016	$3,050	×	90%	=	$2,745
2017	$1,875	×	90%	=	$1,688
Total					$11,867

Adjusted basis in the auto = $38,533 (($56,000 × 90%) - $11,867)