Dump truck depreciation

[ngaucha]

 Turb tax asks if I want to take a "special depreciation allowance on a dump truck for business

[VictoriaD75 · Accepted solution]

Special depreciation is an extra allowance that you can take the first year a property depreciated under the MACRS method is placed in service. This additional allowance is automatically calculated unless you check the opt-out of special depreciation check box. For most assets placed in service after January 1, 2018, the Special Depreciation is 100% of the cost based on the new tax law.

So, rather than spreading the depreciation out over several years, the special depreciation allows you to take all or more than the MACRS calculation in the year of purchase. This is a tax planning tool. If you have significant income to offset in 2019, you may consider taking the special deprecation. Keep in mind, this will limit the amount of depreciation available to you on this asset in subsequent years.

[Carl]

If that is truly a "new" dump truck, then most likely you paid $30K or more for it. Understand that while taking the SDA now may (or more than likely may not) help with your 2019 tax liability, it can have the potential to "BITE" you back in the future.

When you have a business asset that is used on a recurring basis for the production of business income, that asset is required to be depreciated by law. Then in the future when you sell or otherwise dispose of that asset, you are required to recapture that depreciation and pay taxes on it in the year you sell or dispose of it.

If your business does not have "TAXABLE" business income that is at least equal to your special depreciation allowance (SDA) then it's an absolute waste of your time and effort to take that SDA.  It will not help you to it's full potential on your tax liability.

Since vehicles are depreciated over 5 years, So for a $30K dump truck that would average out to about $6K depreciation each year. Generally, if your business was in it's first year a business in 2019, then it's very unlikely (though not impossible) that taking the full SDA will be of any benifit to you.

One important thing to understand is that when you sell the vehicle in the future, several things happen that you may not be aware of.

 - You are required to recapture all depreciation taken and pay taxes on it in the year you sell or otherwise dispose of the asset. You will be taxed on the recaptured depreciation anywhere from 0% up to a maximum of 25%.

 - That recaptured depreciation *will* increase your AGI, thus chances are good that will put you in the next higher tax bracket.