Section 179 second year

[HR30]

Thanks again for your reply.

I wrote, "In Turbotax, both the $44507 Section 179 expense and the $857 straight line 7 year depreciation expense are deducted".  I was incorrect.  Turbotax did not use S/L but MQ as the convention.  Turbotax used a 7 year recovery period on the $24000 Section 179 disallowed portion of the truck cost, "MQ" as the convention and 200DB as the method to calculate $857 in depreciation in addition to the $34507 Section 179 write-off. 

While on the subject of Section 179, what is "special depreciation", reported in Part II of Form 4562?  Are there not enough methods of depreciation without calling one "special"?

In my form 4562, yet to be filed, Part V section A is blank.  The Section 179 deduction appears in Part I.  For the Form 4562, Line 12 Smart Worksheet

(A), Total Section 179 before limitation should be the total cost of the truck, $68507, but it is auto-filled as $34507, the amount I typed, and 

(B) Section 179 allowable, if different is $34507.

It seems to me that the Turbotax generated entry for (A) is wrong, but maybe I am wrong.  It seems I can use Section 179 to justify a deduction of any amount up to the entire cost as long as the cost is below $1,050,000 or the net profit of the business in which the asset is used, whichever is lower.  Are this autofilled entry correct entries and if not do you know how to correct them?  It seems that I cannot use Turbotax to change entries on forms, only on worksheets.

I guess that Turbotax would allow me to use Section 179 to deduct more than what the IRS would allow, which is the entirety of the profit for a business.  Again, it is my understanding that a Section 179 deduction cannot exceed the net profit of the business in which the asset is used.  Rather than calculating the maximum allowable Section 179 deduction,  Turbotax seems to allow me to deduct in excess of the net profit and thereby show a loss, which I believe the IRS would disallow.  Is my observation correct?

[DaveF1006]

To clarify, what was the profit of your business before expenses were added? Was it $34,000? Also, were there other expenses besides the 179 deduction?

@HR30

[HR30]

Hi, Thanks for replying.

The profit for the business, one of my rental properties, after other expenses and before the truck Section 179 election of $34507 was about $45000- and about $10,000 after the Section 179 deduction. 

As it ends up, as I went through my tax filing within Turbotax, the Section 179 deduction election apparently was not allowed against rental income even though that rental property is part of a qualified business enterprise.  In my case it seems that the Section 179 deduction was only allowed against my Schedule C income, which for me is property management income.

I had to pay myself enough in property management fees, an additional $34507,  to cover the $34507- Section 179 deduction for part of the truck cost from Schedule C income.

As far as I know, Section 179 elections for tools and equipment and vehicles, etc. can only be made against income generated by the relevant business.  For example, Section 179 elections may not be made against unrelated income, such as capital gains for selling stocks.

Also, as far as I know, Section 179 deductions may only be made to the point of deducting profit down to zero and may not be used to generate losses.  Part of a Section 179 deduction that would take the bottom line below zero, that would generate a loss, would be disallowed.  What is not clear is if Section 179 deductions are the first made or the last made.  In other words, if a Section 179 deduction is made first and the business still has profit then may other deductions for expenses be made that would leave a loss?  Or, if other deductions for expenses are made first and the business still has a profit then may a Section 179 deduction be made that would only take the net profit down to zero.  It seems to me that if a Section 179 deduction is being made then the business may not report a loss because Section 179 deductions may not be used to generate losses.

[HR30]

Intuit states that Turbotax does not support all Section 179 deductions:

"Taxable Income Limitation for Section 179 (Form 4562): If you have a trade or business loss
subject to the at-risk limitation (Form 6198), the program uses the unlimited loss to compute the
taxable income limitation for section 179 on Form 4562, line 12.
This would affect your return only if you also had trade or business income from another activity. In
this case you may need to adjust the taxable income on Form 4562: Depreciation Information, line 3b
to reflect the limited loss. If you are reporting a trade or business activity on Schedule E or Form 4835
that qualifies for the Section 179 expense deduction, enter the net income on the Depreciation
Options Worksheet, line 3b, for it to be included in the Section 179 limitation calculation."

Turbotax is too awkward for me to figure out how to report this deduction properly and according to the guidance above.  In my previous reply, I described how I made my Section 179 expense deduction against property management income (Schedule C) rather than against a rental property on Schedule E.

[4193042887]

Form 4562 / I have carry over depreciation that is not carrying over to last year 2021 from 2020 into special depreciation.  I have used the five year depreciation for renovations to my rental property in the amount of $18,191.  under Part !1 Special Depreciation. The calculation are completed in Form 8582 yeilding a maximum depreciation allowable of $25,000 that should be part of my overall cost reductions / and tax reductions under worksheet 6 I never had this problem before and 

[4193042887]

None of this pertains to any vehicle or one time bonus.  I have NO $18,000 deduction for vehicle or need for Section 179 does not apply.  How do I correct this and get credit for one time improvements in 2021 of $8590 written off in one year as expenses and capture my carry over Special Depreciation from previous years of $18,191 for reduction of income / taxes? Very frustrating.

[4193042887]

Bad answer as I just wrote there is no vehicle for $18,000 and no bonus depreciation relative to Section 179. 

[htstucco]

I failed to take the huge depreciation on the company vehicle in 2019.  The 5 year mark will be in 2023.

This years depreciation is only $406.  How do I record the difference in the depreciation that can be taken?

Can I record it on the books as a Credit to Accumulated Dep. and Debit towards Retained Earnings.  Since I 

can't go back and amend that many books. What do I do and how do I record it.

Thank you,

Jan

[HopeS]

For tax purposes, you would have to file Form 3115 (Change of Accounting Method) in order to tax the missed depreciation from 2019-2022.

Form 3115

@htstucco 

[htstucco]

Are you sure....  How do I change accounting method to record the Prior depreciate to balance the correct depreciate that should have been taken.   I do not want to expense that amount and was wondering could I

record the correct (accumulated depreciation) to my books and put the difference in retain earnings?

Thanks,

Jan

[ThomasM125]

You can make the journal entry you suggest, crediting accumulated depreciation and debiting retained earnings for book purposes and it would be correct. However, to reflect the missed depreciation as a deduction on your tax return, you would need to file form 3115 to reflect a change in accounting method, or amend the prior year returns, for which you could only go back three years. Here is an article on the subject:  Recording missed depreciation

@htstucco 

[ElijahTalcott]

Hello! I was hoping for some help with a similar issue with section 179. 

I purchased a new work truck for $31,991 and whenever I was inputting this into turbotax it said that there was a maximum $19,200 deduction(along with 3,241 in other truck related expenses totaling 22,241) . My question is over the next five years will I still be able to use a depreciation of the remaining $12,791? The reason I ask is because it does not indicate one way or another if the asset can be used in the future or not. 

 Thanks for the help. 

[PatriciaV]

Yes, you will have depreciation expense for the next five years on this truck. You're receiving accelerated depreciation because this is the first year you used the truck for business. The remaining basis will be written off over the remaining life (five years) according to the rules of depreciation.

Look for Form 4562 Depreciation and Amortization Report that prints with your complete return. This report shows your depreciable basis, the useful life, and the depreciation method that will be used in future years.

@ElijahTalcott