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, 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.