bonus depreciation

[jmike1947]

how is bonus depreciation entered?

[DavidD66]

Bonus Depreciation is an election that is selected during Asset Entry.  After entering cost, description, etc., there is a screen ""How Do You Want to Deduct this Item?"  The last option on the page is "I'll take the 100% special depreciation allowance."

[Carl]

Also note that if, based on your entries into the program, TurboTax determines the asset does not qualify for the Special Depreciation Allowance, then that option will not be offered.

[jmike1947]

how does it determine that?  this is 15 yr QIP that is available for 100% bonus

[Carl]

One of the ways I"m aware of, is by the MACRS classification. For example, something classified as "Residential Rental Real Estate" usually does not qualify for bonus depreciation. (But other factors may "cancel out" that disqualification, and therefore qualify it.)

Additionally, a major thing to consider before taking bonus depreciation, is if it will actually be beneficial in the tax year you take it. For example, rental property with a mortgage on it will almost always operate at a loss on paper at tax time. Since you can only deduct passive losses from passive income, bonus depreciation may not make one penny of difference on your tax liability in the tax year you claim it. (There's an exception for an allowance to take up to $25K in passive losses against other "ordinary" income if you qualify. Most do qualify) So in such a scenario it can actually hurt you tax-wise in the year you sell the property, if the time in service for the asset with normal MACRS depreciation hasn't reached that bonus depreciation taken point. The depreciation recapture gets recaptured and taxed at a maximum of 25% in the year of the sale, and actually increased your AGI in that year. It "could" potentially bump you into a higher tax bracket too.

What I"m saying here, is carefully think things through before taking the special deprecation allowance. What may save you a few bucks now, if it actually saves you anything at all, may actually cost you 5-10 times more in tax liability later.

[Dirtmaster]

Using TT Business software this doesn't seem to work if I enter the asset as a VEHICLE. After entering the truck TurboTax only gives the option of standard mileage deduction or actual expenses. Should the vehicle be entered as a different asset type?

[PatriciaV]

No, a truck is typically entered as a Vehicle under Depreciation of Assets. The election of Special Depreciation is made in this section and not under Business Expenses >> Vehicle Expenses.

If you have added this truck as a Business Asset and were not offered the option to choose Special Depreciation, it's possible your vehicle does not qualify.

From IRS Pub 946: Claiming the Special Depreciation Allowance:

Excepted Property

Qualified property acquired after September 27, 2017, does not include any of the following.

• Property placed in service… and disposed of in the same tax year.
• Property converted from business use to personal use in the same tax year acquired. Property converted from personal use to business use in the same or later tax year may be qualified property.
• Property required to be depreciated under the Alternative Depreciation System (ADS). This includes  listed property used 50% or less in a qualified business use. For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies? in chapter 4.
• Property for which you elected not to claim any special depreciation allowance.

[Blandeg]

But if you do a 1031 exchange, bonus depreciation can be deferred unlike Section 179 depreciation.  And if your income disallows the $25,000 passive income loss, bonus depreciation is the best (maybe only) way to defer taxes.  Suspended passive losses are not deferred through a 1031 exchange, but rather become part of the boot.