Sid purchased an automobile for personal
use on January 18, 2011 for $10,000. On January 1, 2015, Sid starts a small business and
begins to use the automobile exclusively in the business. The automobile’s FMV on this
date is $6,000. MACRS depreciation deductions are based on a 5-year recovery period.
. What is the automobile’s basis for depreciation when converted to business use in 2015?
. Assuming Sid does not elect Sec. 179 expensing, what is Sid’s depreciation deduction
in 2015?

Part A. $1200

Part B. $1200  

Explanation:

Part A.

Under MACRS rules, the depreciation rate for the 5 year recovery period asset would be:

Year 1    20%

Year 2   32%

Year 3   19.2%

Year 4   11.52%

Year 5   11.52%

Year 6   5.76%

This means that the first year MACRS depreciation deduction would be 20% which is $1200 ($6000 * 20%).

Part B.

If Sid does not elect Section 179 expensing then the depreciation would be calculated using straight line basis.

The depreciation would be:

Depreciaiton Expense = $6000 / 5 Years life   = $1200

answer; ///i believe that the correct answer is (a) it is the means by which a person earns money;

you will have $2593.74 in 10 years if you set aside $1,000 at 10%

you will have $9321.91 in 20 years if you set aside $2000 at 8%

you will have $1469.32 in 5 years if you set aside $1000 at 8%

you will have $1296.87 in 10 years if you set aside $500 at 10%

you will have $239.66 in 15 years if you set aside $100 at 6%

you will have $4660.96 in 20 years if you set aside $1000 at 8%