[trk85718]

Hi All,

This question relates to the last question in the DRS. In computing the basis of the new auto exchanged why do we take the total current year depreciation? I would think we would use the half year convention in calculating our basis in the new asset received.

[Recked]

Don't have it in front of me, but you are using half year, but MACRS year 2 is 40%, so you use half year or half of 40%, which is 20%.

If my memory serves me, its something along those lines.

[trk85718]

My Question is when calculating Realized Gain, why do we use the entire years current depreciation. Why not take half ? because we are disposing the asset?
Here is the fact pattern:

On August 1, you traded in a year 5 model delivery van for a new delivery van paying cash of $23,300, as indicated on the invoice from Beachside Car and Truck Sales. The year 9 delivery van tax basis reflected in the tax depreciation worksheet is $23,300.
Old Auto:
Purchase Price : $18,125
Beg Bal Accum Dep : $14,993
CY Depreciation : $1,044 (why take entire depreciation in exchange?) why not half
Ending Basis : $2,088

New Auto Invoice:
Cost of delivery van
Cost $30,400.00
Destination charge $790.48
Less trade-in of year 5 delivery van
($9,000.00)
Subtotal $22,190.48
Sales tax at 5% $1,109.52
Total due $23,300.00

Answer : basis in new auto $25388 ($23,300 + $2,088)

[Recked]

Are you sure it is using 100% of the current year depreciation and schedule is not already adjusted to show half year depreciation?

I'm not going to the problem to see all the source documents but I think the Depr Schedule is correctly reporting the depreciation as the transaction already occurred.

[mskcle]

Watch this for an explanation to the SIM

Roger solves it roughly like 25 minutes into the video.

[Author]

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