Problem 8-8 (Algorithmic) Modified Accelerated Cost Recovery System (MACRS), Election to Expense, Listed Property, Limitation on Depreciation of Luxury Automobiles (LO 8.2, 8.3, 8.4, 8.5)

During 2021, William purchases the following capital assets for use in his catering business:

New passenger automobile (September 30) $55,200

Baking equipment (June 30) 16,560

Assume that William decides to use the election to expense on the baking equipment (and has adequate taxable income to cover the deduction) but not on the automobile (which has a 5-year recovery period), and he also uses the MACRS accelerated method to calculate depreciation but elects out of bonus depreciation. Assume he has adequate taxable income.

Calculate William's maximum depreciation deduction for 2021, assuming he uses the automobile 100 percent in his business.

ANNUAL AUTOMOBILE DEPRECIATION LIMITATIONS

Year of Use. 2021 Limits

Year 1. $18,200*

Year 2. 16,400

Year 3. 9,800

Year 4 (and subsequent years until fully depreciated). 5,860*

Additional bonus depreciation of $8,000 is included in this amount.

TABLE 8.2

ACCELERATED DEPRECIATION FOR PERSONAL PROPERTY ASSUMING HALF-YEAR CONVENTION (FOR PROPERTY PLACED IN SERVICE AFTER DECEMBER 31, 1986)

Recovery Year			3-Year (200% DB)			5-Year (200% DB)			7-Year (200% DB)			10-Year (200% DB)			15-Year (150% DB)			20-Year (150% DB)
1			33.33			20.00			14.29			10.00			5.00			3.750