ACCT M50 PRINCIPLES OF INCOME TAXATION PRACTICE EXAM | FREE SOLVED ANSWERS
Frankie purchased a vehicle for business and personal use. In 2024, he used the vehicle 70% for business (11,000 business miles incurred equally throughout the year) and calculated his vehicle expenses using the standard mileage rate. Frankie also paid $1,800 in interest and $480 in county property tax on the car. What is the total business deduction related to business use of the car?
Frankie purchased a vehicle for business and personal use. In 2024, he used the vehicle 70% for business (11,000 business miles incurred equally throughout the year) and calculated his vehicle expenses using the standard mileage rate. Frankie also paid $1,800 in interest and $480 in county property tax on the car. What is the total business deduction related to business use of the car?
Multiple Choice
- a. $6,160
- b. $7,370
- c. $8,966
- d. $9,650
Correct Answer: C. $8,966
Total Business Deduction Calculation
Step 1: Calculate the business portion of the standard mileage deduction.
The problem states that Frankie used the vehicle 70% for business and incurred 11,000 business miles.
The standard mileage rate for business use in 2024 is needed for this calculation. Assuming the 2024 standard mileage rate for business is $0.67 per mile (this rate is subject to change annually, but for the purpose of this problem, we will use a common rate for calculation).
Business mileage deduction = Business miles* Standard mileage rate
Business mileage deduction = 11,000 miles×$0.67= $7,370
Step 2: Determine the deductible portion of interest and property tax.
Frankie used the vehicle 70% for business. Therefore, 70% of the interest and property tax paid are deductible as business expenses.
Deductible interest = Total interest paid* Business use percentage
Deductible interest =
Deductible property tax = Total property tax paid* Business use percentage
Deductible property tax = $480×0.70=$336
Step 3: Calculate the total business deduction.
Total business deduction = Business mileage deduction + Deductible interest + Deductible property tax
Total business deduction = $7,370+$1,260+$336=$8,966
Answer:
The total business deduction related to business use of the car is $8,966.
ACCT M50 PRINCIPLES OF INCOME TAXATION PRACTICE EXAM FREE SOLVED ANSWERS