Bonus depreciation on business vehicle during COVID

[Wannabe]

I purchased a vehicle (GVWR over 6k lbs) under my business (Single member LLC)  in Jan 2020. The COVID-19 struck and my business did not have positive net income in 2020. The vehicle has low mileage and was used for more than 50% business during the year. 

- Is there any way to claim the first year Bonus depreciation on the car against my PUA or the W2 income from my spouse as we file married jointly?

- I assume 179 deduction is only on net business income and won't apply for 2020 in my case?

- If none of these deductions and depreciation apply in 2020, is it better claim mileage deduction as expense despite loss?

Thank you

[Critter-3]

This is where a paid tax pro is very useful since your return can take many directions and what you do this year can affect the future years as well.  

If you will not use a professional  then I highly recommend you review all your options in the program and look at all of them before making a decision.  We on this public forum cannot possibly tell you what is best  for you without knowing your entire situation.  If you will not seek professional assistance then using the downloaded version would be highly recommended. 

[Wannabe]

I am merely looking to understand the tax law related to vehicle deduction during its first year when the business has net income below zero due to a pandemic which most of us did not plan for. The main question is around bonus depreciation.

I used Turbo tax downloaded version for 2019 tax filing and will most probably do the same for 2020. I am not against using Tax pro but would like to understand our challenges in a difficult year before we take that route - say the Turbotax live option.

[Critter-3 · Accepted solution]

- Is there any way to claim the first year Bonus depreciation on the car against my PUA or the W2 income from my spouse as we file married jointly?  Yes ... bonus depreciation can increase the Sch C loss which can be applied against other income on the return.

- I assume 179 deduction is only on net business income and won't apply for 2020 in my case?  Unallowed 179 deduction is carried forward and used when you do have positive income. 

- If none of these deductions and depreciation apply in 2020, is it better claim mileage deduction as expense despite loss?   In the year a vehicle is placed in service you can choose to take the standard mileage rate or the actual expenses + depreciation.  In future years, if you start with the actual you are stuck with actual.  If you start with standard you can flip flop at will each year.   This is why looking at all your options for this and future tax years is so important.  

Publication 946 … Depreciation

https://www.irs.gov/pub/irs-pdf/p946.pdf

• What is MACRS and MACRS convention?
• What is a Section 179 deduction?
• What is depreciation?

[amrogers916]

So what if you have had more than 50% usage of your personal vehicle for business use in all years but one since 2012. In 2018 it was less, only 48%. Now because of COVID in 2020 and working primarily from home, my milage usage was only 32%. According to  what I read, it sounds like I have to go back from the beginning and add up all the depreciation taken over the years and claim it all as income now. Am I reading this correctly?  That does not seem right. Is there an update I am missing?

[AmeliesUncle]

@amrogers916  No, you are not reading that correctly.

If 2018 was less than 50%, you SHOULD already have adjusted things then, and should currently be using Straight-Line depreciation for this year.  IF that was done, you don't need to do anything unusual for this year.  But if that was not done, you may want to bring your 2018 tax return to a tax professional to review and amend.