A contractor purchases a pickup truck for $45,000 that will be used 80% for business purposes. What amount can be depreciated for tax purposes?
Correct Answer
B) $36,000
Only the business portion of the vehicle can be depreciated: $45,000 × 80% = $36,000. The IRS requires allocation based on actual business use percentage.
Why This Is the Correct Answer
The IRS requires that only the business-use portion of mixed-use assets can be depreciated for tax purposes. Since the truck is used 80% for business activities, only 80% of the purchase price qualifies for depreciation. This allocation ensures that personal use portions are not improperly deducted as business expenses, maintaining compliance with tax regulations.
Why the Other Options Are Wrong
Option A: $40,500
This would depreciate 100% of the vehicle cost, but the IRS prohibits depreciating the personal use portion (20%) of mixed-use assets.
Option C: $9,000
This appears to be 90% of the purchase price ($45,000 × 90% = $40,500), which doesn't match the actual 80% business use percentage.
Option D: $45,000
This represents only 20% of the purchase price ($45,000 × 20% = $9,000), which would be the personal use portion that cannot be depreciated.
Memory Technique
Remember 'BUD' - Business Use Depreciation: only the Business Use percentage can be Depreciated
Reference Hint
Business Law chapter on tax depreciation and mixed-use asset allocation rules
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