Section 179 Vehicle -- Year 3 carry over question

[1099erGirl]

In 2022, we bought a car to use mostly for business (through a single member LLC), using the special depreciation allowance. We've always hit the over 50% rule, no issue but know that the % adjusts the carry forward amounts.

I knew to expect a carry forward amount for Year 2 because of the limited amount you can do for year 1. But what I wasn't expecting is a depreciation deduction Year 3. Even though it was to be an "up to 5 year deduction" depending on how expensive a car was. (under 6000 lbs)

I thought we'd run out of an amount to write off after year 2 because of what carried over.

When I look at the amount Turbo Tax autofills in, the three years combined are higher than the cost of the car.

Can someone explain why this may happen? Am I missing something? I don't want to take a deduction that we aren't allowed but it's auto filled in by TT (home and business) which alerted me it was using 179 carry over number to fill in.

The breakdown:

Cost of car $30,800, no trade in, under 6000 lb SUV

2022 - Special depreciation $16,518 for limited, accounting for approx 86.5% biz use)

2023 - carry forward depreciation auto filled by TT for Year 2 = $9365 (a year of 76% biz use)

2024 - showing carry forward depreciation $7086 (a year of 88% biz use)

Those three figures = 32,969 which is higher than original cost of car.

These #'s have always been calculated / carried over by Turbo Tax.  So  I hope there's a logical explanation about something I'm missing.

Lastly...

I know we cannot ever go back from actuals to standard mileage instead (which I knew would hurt us this year having driven about 10,000 miles this year where 88% of those were biz miles! But I figured that's the rub of having taken off the  bigger amount Year 1.  Does the IRS account for anything more on depreciation because of high mileage in this number chosen this year?

Thanks for any advice you can offer.

[1099erGirl]

Just bumping to see does anyone have any suggestions? I've searched all over and not sure where to look. I try to seek info on sample charts of 5 years of info and can't see any samples where others situations match this one for TT calculations.

[PatriciaV]

Depreciation carried forward represents the amount of deduction you claimed in prior years that could not be claimed because it created a net operating loss. You will have additional depreciation for several years after you first place the vehicle into service for your business. 

However, you may not be able to claim all the depreciation that's applied to your vehicle. In this case, you will have a carry forward each year until you can.

Here are the percentages for a five-year asset using the half-year convention:

Yr 1 = 20.00%

Yr 2 = 32.00%

Yr 3 = 19.20%

Yr 4 = 11.52%

Yr 5 = 11.52%

Yr 6 = 5.76%

Because you took special depreciation, the remaining balance is used to calculate your regular depreciation expense. If you look at the Depreciation Report that is included in your TurboTax return, you can track the depreciation that has been applied to your vehicle each year. 

The screenshot below shows a truck purchased for $60,000 with special depreciation in the first year, a reduced depreciable basis, and 19.2% depreciation for the current year (final column). Total deprecation would be special plus prior plus current = $38,243.

[1099erGirl]

Do you happen to have an explanation why by year 3 we are able to write off an amount that tops the three years combined to over the original cost of the car ? (When adding together Year 1 and 2, those amounts made sense to me. But by year 3, I figured it was over and we wouldn't have more deprecitation or at least not at the above $7000  mark TT calculated and carried over. 

We do show a profit each year, so not making enough 1099 money isn't a concern for its calculation.  We took the extra / special dep allowed year 1. Carry over year 2.

I wasn't sure if they take into account how much we drove it this past year? I figured we lose the higher write off later years based on mileage even though in 2024 our mileage was quite high and when I enter gas receipts the write off  naturally it's way less. (Like $1000 gas receipts instead of .70c mile for about 9000 miles.) 

I wasn't expecting an approx $7000 depreciation this year in addition to the actuals that were about $2000 total in gas and maint.)  Before we file, I want to make sure this isn't a mistake. Your example is great for a higher priced car. Since ours was 30,800 I'm not sure why this year is topping beyond 32,000 when all three years are added together.

[PatriciaV]

It would be helpful to have a TurboTax ".tax2024" file to test this issue further.

If you would be willing to send us a “diagnostic” file that has your “numbers” but not your personal information, please follow these instructions: 

In TurboTax Desktop, open your return and go to Online in the TurboTax header. (On a Mac computer, choose Share or Help.)

1. Choose Send Tax File to Agent.
2. You will see a message explaining what the diagnostic copy is.  Click Send on this screen and wait for the Token number to appear.
3. Reply to this thread with a screenshot your Token number (this avoids Community filters for numbers with a dash) and tag (@) the Expert requesting the token from you.
4. Please include any States that are part of your return - this is VERY important.

In TurboTax Online, open your return, go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools.
2. A window will pop up which says Tools Center.
3. On this screen, select Share my file with Agent.
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number.
5. Reply to this thread as listed above.

We'll review the entries and provide guidance if needed.

[1099erGirl]

Thank you. I will try to create that file tonight and send it over.

[1099erGirl]

@PatriciaV 

Here is the info for the diagnostic copy in attached photo.

Please let me know if you need something else.

The state is Georgia.

Thanks.

[VictoriaD75]

The attached image is not passing our internal virus scan. Can you please type the token number in a response in the thread. Thank you.

@1099erGirl 

[1099erGirl]

@PatriciaV 

Thanks for asking.

Token: 72845176 dash 99717941

[PatriciaV]

The diagnostic return copy you provided shows no carryovers, either on Schedule C or Form 8582. Further, the depreciation report with active depreciation expense for the current tax year shows no Section 179 deduction or special depreciation taken on any assets in the past.

If you are seeing a carryover on a TurboTax screen or a form in your return, please provide a screenshot.

[1099erGirl]

@PatriciaV 

Did you by chance mean Form 4562? 

Form 8582 says "passive activity loss" which isn't where it puts my car info.

Here are screen grabs from the 3 years of info I could try to capture from TT 2022-2024 in the attached PDF.

I'm showing 2 grabs per tax year to show how the info is showing to me either in TT or on FORMS.

I knew Year 1 was limited so I expected to have a year 2 carryover.  So TY2023's number didn't surprise me. I'd even posted during year 1 to ask should I expect a year 2 carryover b/c of the limitation on year 1 not being high enough for % used vs cost of car. I had assumed TY2023 was the final write off amount (since my SUV wasn't expensive enough to last for 5 years of write offs.)

But once a number showed up TY2024 and in the summary screen on TURBO it's showing over $9000 including this $7086 plus actual gas and maintenance receipts from 2024, I wondered if something was wrong in the amount TT carried over.

[1099erGirl]

@PatriciaV 

Just wanted to follow up and see if you had a chance to look at the PDF I posted on Sunday.

Thanks again for the help.

[PatriciaV]

The screenshot you provided for tax year 2022 (Depreciation Report) does not match the entries on your current year return (per the diagnostic copy you provided).

Open the Car & Truck Wks (VW Tiguan) and scroll down to Part VI. Notice that Line 36(i) Special Depreciation Allowance is blank. In Part VIII Line 71, the Depreciable basis is $27,079, while your 2022 Depreciation Report shows this as $9,985.

It appears that this entry was missing from your 2023 return as well (top of the second page of the PDF). This means you took more depreciation last year than was correct. If this expense was not reported but was carried over to the next year, you don't need to file an amended return. But you may need to adjust the carryover amount on your current return.

However, you will need to correct this in your TurboTax file for 2023 in order to generate the reports you need to accurately calculate depreciation this year. You may find that this vehicle was no longer eligible for Special Depreciation on your 2023 return, most likely due to an entry error. You will need to check the "No" box on Line 36(a)(2) in order for the program to accept an amount on Line 36(i).

To correct this on your current return, you will need both the Depreciation Report and the AMT Depreciation Report from your CORRECTED 2023 return. 

1. Enter the Special Depreciation amounts on Part VI Line 36(i) and (j) 
2. Then enter the total of current and prior depreciation on each of those reports on the worksheet Part VI Lines 37 and 39 respectively. 
3. Finally, check Part VIII Line 71 to be sure the Depreciable basis matches your prior year return.

NOTE: This is a complex situation and difficult to fully correct. You may consider upgrading to TurboTax Live. This online service provides step-by-step guidance from a tax expert whenever you need assistance, either over the phone or by screensharing. The TurboTax Live expert will also be able to fully answer your questions in a timely manner. The time savings may be worth the additional cost.

@1099erGirl 

[1099erGirl]

@PatriciaV 

First… thank you so much for looking at this for me.

It took a bit before I could truly dive into your response and open all three years of taxes to see if I could understand your notes.

1. Is Turbo live the help screen you suggest the one they are currently offering for $50 under advantage program and would that involve helping with this 2023 error?
2. Since I qualified for Special Depreciation in 2022 upon first purchase, why would TT not have copied over the correct amount written off in 2022 to 2023? I let the software do this automatically (which it even tells you something like “we have enough information from your 2022 return to carry over depreciation”). We qualified for $16,518 first year (2022) under the special allowance version of a $30,800 purchase. Why would TT have copied over an amount less than that causing this error in 2023?
3. Everyone on the help boards 2022 said whatever you can’t write off year 1 carries over. So the $9365 did  not seem wrong to me in 2023. I assumed that was what was leftover after the year 1 was limited. What I wasn’t sure was would the final amount be spread out over years 2-5 or taken as a lump in year 2 since it wasn’t a huge amount. (Like for those who buy 100k vehicles it has to get spread out because of yearly limits. I thought since our car was cheaper, maybe that’s why it put the whole amount left in year 2.)
4. What I was  NOT expecting was there to be anything left for this year 2024, which is what led me here to ask since this year’s amount tipped it over the cost of the car. But last year’s did not. And came pretty close to a % of purchase that made sense.  I expected a balance write off of approx. $9900 to be left after year 1 so the $9365 didn’t seem weird to me in year 2 (esp because each year the % based on mileage isn’t going to be identical).
5. Since my 2024 taxes are about finished and almost all entries are in… if I did correct 2023, how will it get the right information from that form into this year’s taxes, without starting over on a new import from 2023?

Thank you for trying to help me sort through this so I can decide next steps, including potentially singing up for help as you suggest.

Thanks!

[1099erGirl]

@PatriciaV....

I've spent a few more hours going over the variety of TY s/w for Turbo.

I know you had mentioned it was showing 0 for the prior year depreciation on my 2023 taxes. But I do see on 2023 the $16,518 exact number from 2022 on 2023 tax forms under the line called AMT / line 39. So when TT transferred in the information automatically, that was the line it used that number on. (It was considered "Special Allowance" column in 2022 when we purchased the car.) 

I'm coming to understand how the depreciation amount floats with the % we used it each year.

(Like first year 86% vs 2nd year 76% vs 3rd year 87.9%. so the amount we can write off changes each year based on purchase price vs use.)  

The number TT chose for rest of the write off WOULD have been $9985 had we stayed exactly at 86% biz use.  It dropped a bit b/c of the 10% less biz use in 2023, but went back up in 2024. 

It still doesn't help me figure out how to get over this 2024 hump of letting us write off more than it should. Is there something I can do to choose AMT for this (if that's how they looked at the special allowance during year 1 of this.) 

But does knowing 2023 TT software put our 2022 amount in line 39 help explain any of this? And does that mean anything was still wrong with 2023?