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During 2021, William purchases the following capital assets for use in his catering business:New passenger automobile (September 30) $64,000Baking equipment (June 30) 10,000Assume 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.Calculate William's maximum depreciation deduction for 2021, assuming he uses the automobile 100 percent in his business.

Sagot :

$21,640 will be the William's maximum depreciation deduction for 2021, assuming he uses the automobile 100 percent in his business.

So, in order to help us answer this question or solve this problem, the following data, parameters, or information is provided to us:

New passenger automobile (September 30) = $64,000.

Baking equipment (June 30) = 10,000

William chooses to take advantage of the election to expense on the baking equipment (and has enough taxable income to cover the deduction) but not on the car (which has a 5-year recovery period), and he also uses the MACRS accelerated method to calculate depreciation but opts out of bonus depreciation.

Suppose his taxable income is sufficient.

Thus, if we are to abide by Internal Revenue Service regulations, the new passenger vehicle that is the depreciable limit = 11,160 - 8000

                                                                              = 3,160

the highest allowed depreciation deduction = Baking equipment +

                                                                             depreciable limit

                                                                          = 18,480 + 3,160

                                                                          = $21,640.

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