claiming depreciation on passenger vehicle

[komalrastogi]

I bought a passenger vehicle on Aug 06,2022 for $115,225.

Total Kms run for 2022 (from Aug 06,2022 to Dec 31,2022) was 5,103Kms, out of which 495 Kms were for business use. Software on form 4562 computes business use at 4.04%, whereas my business use is 9.7% (495/5103). What is the reason of this difference. ( By the way on Car and Truck Expenses Worksheet it says line 6 divided by 5c. Line 6 is 495, line 5 is 5103, so percentage should be 9.7% and not 4.04%)

Secondly, based on S/L-HY, with recovery period of 5 years, software computes depreciation of $4,655.There is no bonus depreciation nor 179 section depreciation, as business use is less than 50%. Taking allowed depreciation of $10,000 for first year and vehicle in use for 148 days (from Aug 06,2022 to Dec 31,2022), should depreciation amount not be $4055 (10000/365*148). Pl validate these numbers.

Thirdly, software gives depreciation deduction of $466. This works out to 10% of depreciation (466/ 4655),

whereas per first para business use is 9.7% (495/5103). Assuming that there may be round off effect, why it is not been taken at 4.4% per Part V 27 (c).

Will appreciate to get an insight to these observations. TIA.

[Mike9241]

I'm assuming your vehicle is listed property (PUB 946 chapter 5) and thus subject to luxury auto limit for 2022 and that you are not taking the deduction as an employee. Such a deduction is not allowed for Federal purposes for 2022. so either there's a bug in the program or you enter something incorrectly. I'm using a different version and my 4562 shows 9.7%

the depreciation should be $11200 the luxury auto limit (pub 946 page 58 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum depreciation
deduction is $11,200) * 9.7% business use which comes out to $1086

https://www.irs.gov/pub/irs-pdf/p946.pdf 

days used is irrelevant. depreciation is computed based on the maximum allowed for the year times business miles (KM) divided by total miles (KM)

[hkgcpa1999]

I fully agree with your calculations. However, using CD Version of Turbo Tax (Business & Home) , I get business/ investment use percentage of 4.04% in form 4562 on line 27(c) and depreciation of 4,655 in row 27 (e) with recovery period of 5 years on SL-HY. However, depreciation deduction comes at 466 (which is 10%) of depreciation. Matter to be noted is that vehicle was purchased in Aug 2022 and vehicle ran for total 5103 out of which business use was 495Miles.On Car and Truck Expense Worksheet on 10a, against have record of personal mileage for full year, I mentioned NO and in 10b, agonist months for special allocation, I mentioned 5. So it makes sense that 9.7%is divided by 12 and multiplied by 5 to arrive at 4.04%. Is this right? Is mentioning NO on 10a and 5 in 10b right, as vehicle was put to use in Aug, 2022.

However, question remains how on form 4562, on row 27e, software is computing 4,655 (basis for  depreciation). Should it not be 11200 and  then in row 27h, it should be showing depreciation deduction of 453 (11,200#4.04%).

I request for your comments on these two matters.

Thanks in advance.

[xmasbaby0]

Kilometers?   Are you preparing a tax return in the U.S or in Canada?  This is the user forum for U.S. returns.

CANADA  This is the U.S. TurboTax public user forum. For help with Canadian taxes, please post your question in the Canada TurboTax user forum., at the following link.

https://turbotax.community.intuit.ca/community/turbotax-support/help/03/en-cahttps://turbotax.intuit.ca/tax-software/index.jsp

[hkgcpa1999]

Sorry, by mistake I mentioned KMs, these are Miles. Taxes are being done for US using Business & Home CD Version.

[Mike9241]

listed vehicle depreciation.     maximum first year depreciation based on 100% business mileage is $11,200

based on the fact you can't use 179 or bonus depreciation since business use below 50% 

it would seem you answered NO to the question of having a record of personal mileage for full year (10a).  since you acquired the vehicle in August the question is really do you have a record of personal mileage since acquisition.  there is a separate question of about having a record of business mileage and a second question of it being written. Answering no to having a written record of business usage increases your audit risk and if audited the IRS could deny the deduction as small as it is.   

I really don't know how the personal mileage question should be answered. if you take the odometer reading at year end and kept a record of business milage. by simple arithmetic personal miles is the difference.  it's not asking if the personal mileage is written.  

since you answered no to having a record of personal mileage Turbotax states the following as help for that line 

Check the appropriate box to indicate whether or not you have records for the full tax year (actually since acquisition) for any personal miles driven. When no records exist for your personal mileage, a special allocation based on number of months of business use is required to determine your business use percentage. TurboTax automatically computes the number of months of business use and the special allocation when you check "No" here. See the instructions above for what to enter on lines 4a, 4b, 4c, 5, 6 and 7 in this case.

The last sentence seems to be nonsense because it hasn't been updated

I did find this which seem to be to the point

If you checked "No" on line 10a, then lines 5a, 5b, 5c, 6, 7 and 8 should only include those miles actually driven during the period of business use.

thus the 27c is now 5/12 times 495/5103 = 4.04% business usage  

27d working backwards the cost is about 115200 

27e tax basis is then 115200 times business usage or 4655 

27h is then luxury auto limit of $11200 times 4.04% or 453

if 10a was not checked "NO" then depreciation would be 11200 * business usage of 9.7% or 1086