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]

---

@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?

---

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]

---

@joemarteau wrote:

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

---

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