Business Expense Depreciation increase.

[9nNancy]

In 2022, I started using a piece of equipment that I had purchased for $24,000 for my new business. I also used this for personal use. I did it correctly for my 2022 taxes showing I only used the asset 10% of the time for business. It amortized the equipment over 5 years at $4,800 p/year. So, my business expense for the tractor was $480. For 2023 however, I increase my business usage of the tractor to 85%. When I was in turbotax and went to the asset and "edited", I changed the usage from 10% to 85%. It now shows for 2023, that my business use of the tractor was $7,680. I understand where they got the calculation: 2 years of amortization was $9,600 x .85 = $8,160 - $480 (from previous year) = $7,680. This doesn't seem right to me though as the 85% was only for 2023? Also, when on that asset page, if I keep everything at 10% usage, it then tells me if business usage drops below 50% I have to do a recapture...the use didn't decrease, it increased. Am I doing something wrong? There is no where to put in "did my usage increase"...just changing it on the one asset screen. 

[ThomasM125]

The depreciation of $7,680 appears to high. I suggest you delete the asset and and re-enter it. When you do so, the prior year depreciation will be suggested based on the 85% usage but you can enter the actual depreciation taken of $480 and your depreciation will drop to $5,691 for year two, assuming a five year estimated useful life. Also, TurboTax uses MACRS accelerated depreciation, so your 2nd year depreciation will be at 32% for five year property using a half-year convention.

[AmeliesUncle]

TurboTax generally does not use the "tables" for depreciation; it uses a different mathematical formula to calculate it.

Using the mathematical formula (well, at least the way Intuit does it, which is possibly questionable) changing business percentage has those kind of results.  Changing to a higher business percentage will result in additional depreciation (like it is trying to 'speed' on the depreciation to match the higher business percentage) and changing to a lower business percentage will result in low depreciation (like it is trying to 'slow down' on the depreciation due to a lower business percentage).

[9nNancy]

So you are saying to delete the whole thing and keep 2022 as the actual acquisition date? Then it will allow me to put the $480 in for 2022? I can then put in the 85% usage for 2023 and it will get me to where I need to be?

Thank you so much,

Kyle

[9nNancy]

So you are saying to keep it like it is for this year...and for example, if in 2024 my business use would drop to like 40%, it would "catch up" or recapture the fact that my business use went down? And then after 5 years, it all evens out to what it should be for total business use over the whole 5 year span?

Thanks to everyone!

[AmeliesUncle]

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@9nNancy wrote:

So you are saying to keep it like it is for this year...and for example, if in 2024 my business use would drop to like 40%, it would "catch up" or recapture the fact that my business use went down? And then after 5 years, it all evens out to what it should be for total business use over the whole 5 year span?

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It would not 'recapture' (pay back) any, but the depreciation would seem oddly low.

If you have the CD/downloaded version, there is an option to avoid that method of depreciation (but you can only start it on the first or second year of depreciation; you can't switch afterwards).  You would go to the "Forms" (upper right of the program) and find the Asset Entry Worksheet (left side) for that piece of equipment.  Then scroll WAY down to the bottom and check the box to use the "IRS Tables".

[9nNancy]

Okay. That makes sense…I guess that is what I meant…it would just be really low. So I can just stick with what I originally planned and put in the 85% and sounds like it will all even out in the end? 

I’m using the online version. Sounds like the downloadable has more options. 

[AmeliesUncle · Accepted solution]

Yes, you can just go ahead and enter it as you already have.  It is fine.

Yes, the CD/downloaded version is better in many ways (but may not have it saved to the 'cloud' so be sure to back things up).