vehicle section 179 deduction

[joemarteau]

I purchased a new luxury vehicle for my business in 2023. It is an SUV under 6000 lbs. It is used 100% for business being depreciated over 5 years. In 2023, I was allowed to take a 179 deduction in the amount of $20,200. For 2024, Turbo Tax calculates my deduction as $3185. It is my understanding that I should be permitted to deduct $19,500 in year 2. I have spoken with the tax expert at Turbo Tax and was advised to list the additional $16,315 unused depreciation as Section 179 carryover from 2023. However, I do not believe this is technically carryover, as it is not indicated as such on my 2023 return. Thank you in advance.

[AmeliesUncle]

Did you elect OUT of Bonus depreciation?  If not, the program is likely correct.

Based on your amount of $3185, was your Basis of the vehicle approximately $49,719 (give or take a few dollars)?

[joemarteau]

Thank you.  I did not elect out of bonus depreciation, to the best of my knowledge.  My remaining basis for depreciation in the vehicle is $49,771.  Original cost basis was $69,971, with $20,000 depreciation taken in the first year. 

So the program is correct?  I thought my remaining depreciation schedule in year 2 would allow me to deduct up to $19,500?  

[joemarteau]

In addition, I used the 200% DB-HY method indicated on my 2023 form 4562, which I understand typically accelerates depreciation.  Thus, with $49,771 remaining as my depreciable basis, shouldn't my deduction for 2024 be closer to or hit the $19,500 cap? Not $3,185?

[AmeliesUncle]

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@joemarteau wrote:

In addition, I used the 200% DB-HY method indicated on my 2023 form 4562, which I understand typically accelerates depreciation.  Thus, with $49,771 remaining as my depreciable basis, shouldn't my deduction for 2024 be closer to or hit the $19,500 cap? Not $3,185?

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Due to the maximum limits for a vehicle and a weird portion of that law, it doesn't work like that.

You took $20,200 of Section 179.  That leaves your depreciable Basis at $49,771.

Because you did NOT elect OUT of the 80% Bonus depreciation and you have already maxxed-out your first year of depreciation, the weird portion of the law says that 80% of the $49,771 can't be used until year SEVEN (yes, year seven).

That leaves you with 20% of $49,771, or $9954. 

Year two of depreciation is 32%.  So 32% of $9954 is $3185.

Unfortunately, due to that weird portion of the law, not electing out of Bonus Depreciation in 2023 for a vehicle under 6000 pounds results in lower-than-expected depreciation in years 2 through 6.

[Mike9241]

one of the craziest rules in the code. if he had elected out I believe 1st year would have been limited to $12,200

but year 2 would have been 32% of (69971-12200) = $18487

[joemarteau]

Thank you all for these answers.  It has been incredibly helpful since I have been otherwise unable to ascertain the cause.  I suppose another option would be to amend my 2023 return to opt out of the bonus depreciation in order to spread out the deduction more evenly over the subsequent years.

[AmeliesUncle]

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@joemarteau wrote:

I suppose another option would be to amend my 2023 return to opt out of the bonus depreciation

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Probably not.  The election out of Bonus depreciation must be done on timely filed tax return.  Unless you live in an area that the due date has not passed yet due to a Disaster Extension, it is too late to opt out of Bonus.

https://www.irs.gov/publications/p946#en_US_2023_publink1000299556

[wujz2004]

@AmeliesUncle Thanks for your clarification. I have exactly the same issue, had a new car in 100% business use January 2023. The original purchase price is 49,421. I took max depreciation of 12,200 in 2023 with bonus depreciation of 8,000. Total depreciation in 2023 is 20,200.  So in 2024, the depreciation basis is 29,221. According to your formula, only 20% of 29,221 = 5844 can be depreciated over the next four year. For 2024, the depreciation with 200 DB-HY rate is 32%, so the depreciation amount should be 32%*5844 = 1870. While on Form 4562, the depreciation is 3163. How did TurboTax get that number? I am confused how TurboTax works, wondering whether TurboTax has a bug. Thank you!

[wujz2004]

From Pub 946, the first year (2023) max depreciation with special depreciation is 20,200. Then in 2024, the max depreciation is 19,500. How does TurboTax calculate as 3,163? Did I miss something?

[DianeW777]

it depends on a couple of things. First the date placed in service and second the business miles divided by total miles to arrive at the business use percentage.

Check those numbers to see where you stand. You have access to all forms when you choose to print your return in TurboTax Online/Mobile.  However you are required to pay before printing, but do not have to file until you are ready.

• Can I print a copy of my return in TurboTax Online before filing?

If you are using TurboTax Desktop you can switch to Forms and review all forms and worksheets.

[wujz2004]

@DianeW777 Thank you for your response. My milage is 100% for business purpose, 0% for personal use, as entered in TurboTax. The car, under 6,000lb, was placed in service January 2023. The following is my calculation based on Depreciation Worksheet for Passenger Automobiles: 

	Year	5-year	Basis	Deduction/Depreciation	Limit
2023	1	20%		20200	20200
2024	2	32%	29221	9350.72	19500
2025	3	19.20%		5610.432	11700
2026	4	11.52%		3366.259	6960
2027	5	11.52%		3366.259	6960
2028	6	5.76%		1683.13	6960

So 2024, the depreciation should be 9,350.72. Don't know how TurboTax calculated it as 3,136? 

Any clue why my calculation is so far off w.r.t. TT?

[AmeliesUncle]

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@wujz2004 wrote:

The original purchase price is 49,421.

According to your formula, only 20% of 29,221 = 5844

While on Form 4562, the depreciation is 3163. How did TurboTax get that number? I

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No, it is 20% of the original cost ($49,421), which is $9884.

32% of $9884 is $3163.

[PP]

Hi Did anyone finally figure this out. I am in the same boat :

My auto is < 6000 lbs and only used for business. I took section 179 in 2023 along with bonus depreciation resulting a depreciation of $20200. However, for 2024, turbotax is only calculating $2297 which is way below what the limits are. What am I missing ? Any help would be greatly appreciated. 

Thanks,

[joemarteau]

Hi all, I am the original poster.  For what it's worth, I input my numbers into H&R Block and it seems like it is letting me take the proper deduction in year 2.  I cannot speak to whether this is correct or not at this point, but I tend to think there may be an issue with the TT online program.