Tax Year Prior to 2020: Year 2 Bonus Depreciation/Section 179 on vehicle not calculating

[waefsr]

In 2018, we took the $18000 maximum special depreciation on our business vehicle.  We are now trying to claim the $16,000 in year two per IRS regulations.  TurboTax is not making the calculation.

I called TurboTax support and they told me that we should put $16,000 in the Section 179 carryover section, but when we do that, the Form 4562 is incorrect and saying that the $16,000 is a carryforward from 2018 due to business income not being able to cover the previous year's depreciation. 

TurboTax will not let me change/override Form 4562 to correct the lines where the $16,000 depreciation needs to be included.  It keeps saying that it will automatically pull from the vehicle worksheet, which it is clearly not doing.

They didn't say there was an update coming out and their solution was clearly wrong.  I know they stand by their information, but I prefer to not trigger an audit by following their suggestion since the information goes against what the IRS instructions are saying.

Is there anyway to override the 4562 Form to correctly reflect the depreciation how it should be reported, or am I out of luck to file electronically with TurboTax?

Thank you for any help!

[AmeliesUncle]

You need to clarify what you actually took.   Bonus Depreciation and Section 179 are different.

If you took Section 179, did you elect OUT of Bonus Depreciation?

[AmeliesUncle]

A few more questions for a better understanding:

• Is the vehicle under 6000 pounds?
• What type of vehicle is it?
• How much did the vehicle cost?

[waefsr]

We selected the bonus depreciation, which had the $18,000 limit (and answered yes to the question for 2018 from TurboTax regarding bonus depreciation).

The vehicle is a van under 6,000 pounds and cost $35,000.

Per IRS pub 946, $18k can be taken the first year and $16k can be taken the 2nd.

[AmeliesUncle]

Can you double-check that you didn't claim Section 179?  Because if you did, that would explain what the program is doing.  On your 2018 tax return, look at Form 4562.  Section 179 should show up on Line 12 and column (i) of Line 26.

On another note, the $16,000 is the MAXIMUM deduction for the second year, which is based on a $50,000 vehicle.  So a $35,000 vehicle will probably have less.

[VictorW9]

If it were bonus depreciation, it would have taken the whole 100% of the cost of the qualifying property. In 2018 under the Tax Cuts and Jobs Act, bonus depreciation increased from 50% to 100%.

[AmeliesUncle]

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@VictorW9 wrote:

If it were bonus depreciation, it would have taken the whole 100% of the cost of the qualifying property. In 2018 under the Tax Cuts and Jobs Act, bonus depreciation increased from 50% to 100%.

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No Victor, this is a vehicle subject to the Luxury Limits.

[Anonymous]

for the $18K you took bonus in lieu of 179.  so there is no 179 carryover to 2019.

bonus only applies the first year after that its the regular MACRS depreciation method

if you override any form you can not efile.

have you entered the total and business mileage 

is the type of vehicle a1

what was the cost of the vehicle?   what t your looking at is the max year 2 depreciation but that depends in part of the cost of the vehicle.   

for some help with input screen   various line numbers

is 33 completed?

34 should be $0   - you are only allowed to make the 179 election in the first year you elected out by talking the maximum bonus

35 shows the maximum allowed for any vehicle not what you are entitled to

36a and 1 s/b yes

36 I and j should be $18,000 - the bonus depreciation you took in year 1

37 s/b $0 since this excludes 179 and bonus. 

[waefsr]

I don't have my tax forms here, but I will definitely check that.  But, if it had only taken the Section 179 depreciation, wouldn't the depreciation amount have only calculated to $10,000 instead of $18,000?

What line would I see the bonus depreciation on?  Line 14?  Or on a different line?

If I find out that the amounts were filed on the wrong lines on Form 4562, I'm guessing that I would need to amend my filing since the limit for Section 179 is lower than the bonus depreciation and it had been put on the wrong lines?

[AmeliesUncle]

The maximum would still be $18,000 in the first year, regardless if you 'maxed out' things with Section 179 or Bonus Depreciation.

No, Bonus shouldn't show up on Line 14 because a vehicle is "Listed Property".  It should show up on Line 25 (page 2).

Yes, if you did use Section 179 instead of Bonus, you will want to amend 2018 to remove the Section 179 (and use Bonus, assuming you did not "elect out" of Bonus).  The result should be the same on the Federal return, but your State return may change.

Although Section 179 and Bonus may be very similar, they can act very differently in combination with the Luxury Limits for vehicles.

If that is NOT the problem (you used Bonus in 2018, not 179), then I'm unsure why you are getting those results.  Did the business percentage of the vehicle drop to 50% or less in 2019?

[waefsr]

I do know that I selected the bonus depreciation in the questions and remember seeing that box marked on the vehicle worksheet, but I also think that I remember that the $18,000 was on line 12, which means that it somehow used it as Section 179 instead of as the bonus depreciation anyway.  I didn't override anything, and assumed it was all running through okay.  I'll have to verify all of this tonight.

I'll have to read up on the Section 179 vs bonus depreciation as well to see how they both behave in year 2, since I know it's not calculating any depreciation for year 2 currently.

The business % was 100% for 2019, so that didn't change.

Thank you so much for all of your help AmeliesUncle!  Hopefully I'll be able to check everything out tonight and figure out why it's doing what it is and get it fixed.

[AmeliesUncle]

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@waefsr wrote:

I'll have to read up on the Section 179 vs bonus depreciation as well to see how they both behave in year 2, since I know it's not calculating any depreciation for year 2 currently.

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Most tax professionals don't understand how the Luxury Limits work in conjunction with these, so you may not have much luck in figuring it out.

[waefsr]

If I can at least figure out why TurboTax used the Section 179 instead of bonus depreciation, when I believe I answered the questions correctly, then I think I'll be good (at least if that is what occurred).  I'm going to guess that there was one question in there somewhere that wasn't answered correctly.

I did find the treatment for year two in both cases.  If I can get 2018 fixed for the bonus depreciation instead of Section 179 and refile that, then I should be able to take approximately $5k in 2019, and have it fully depreciated by 2023.  Otherwise, I would have to wait until 2024 before I can take anymore depreciation under Section 179 and not have it fully depreciated until later.  At least that is what it seems to be.

Now if I can just get that all to work in TurboTax.  🐵

[AmeliesUncle]

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@waefsr wrote:

I did find the treatment for year two in both cases.  If I can get 2018 fixed for the bonus depreciation instead of Section 179 and refile that, then I should be able to take approximately $5k in 2019, and have it fully depreciated by 2023.  Otherwise, I would have to wait until 2024 before I can take anymore depreciation under Section 179 and not have it fully depreciated until later.  At least that is what it seems to be.

🐵

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I'm impressed.  Yes, that is mostly correct.  Out of curiosity, what were your sources for figuring that out?

[waefsr]

I started with Rev. Proc. 2018-25 and then found this great article from Kaplan Financial Education Current Federal Tax Developments.

Learning more than I ever wanted to know about taxes!