I purchased a new business vehicle and this vehicle qualifies for a one time Special Depreciation Allowance. Is this a lump sum depreciation vs annual depreciation?

[iceman238]

The footnote states it could affect my state depreciation and my state is listed.

[ColeenD3]

Yes, a one-time special depreciation allowance will give 100% for assets purchased in 2021. You say that your state is listed. I can't tell what state you are in to see if it complies with the IRS.

Temporary 100 percent expensing for certain business assets (first-year bonus depreciation)

The new law increases the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. The bonus depreciation percentage for qualified property that a taxpayer acquired before Sept. 28, 2017, and placed in service before Jan. 1, 2018, remains at 50 percent. Special rules apply for longer production period property and certain aircraft.

The definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after Sept. 27, 2017, if all the following factors apply:

• The taxpayer or its predecessor didn’t use the property at any time before acquiring it.
• The taxpayer didn’t acquire the property from a related party.
• The taxpayer didn’t acquire the property from a component member of a controlled group of corporations.
• The taxpayer’s basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.
• The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.
• Also, the cost of the used property eligible for bonus depreciation doesn’t include the basis of property determined by reference to the basis of other property held at any time by the taxpayer (for example, in a like-kind exchange or involuntary conversion).

[iceman238]

I live in Alabama. I believe on a previous work truck I had the option to take all depreciation at once or spread out year after year. Just to clarify, that is what this is referring to? If I take this one time special depreciation I will not be able to claim depreciation for the remaining years I keep the vehicle in service? Does this apply only to state or does it also apply to federal?

[JamesG1]

Yes, special depreciation allows you to take the entire cost of the asset in the year of purchase.  So a $6,000 equipment purchase can be taken in the year of purchase rather than depreciated over several years (spread out year after year).

Section 179 depreciation may also allow you to take up to 100% of the equipment purchase in the year of purchase.

There are advantages and disadvantages to each and many times the advantage/disadvantage is specific to the nature of the particular equipment that was purchased.

All things being equal, I prefer special depreciation over section 179 but there are many variables given your particular situation.

Some vehicles may qualify for special depreciation.

Some states conform to section 179 depreciation.  Some do not.  Some states conform to the special depreciation and some do not.

My state conforms to section 179 depreciation but does not conform to special depreciation.  This is one of the variables to consider.

Try your new asset under all the options and see how your individual state tax return responds.