Entering section 179 deduction with bonus depreciation for vehicle (under 6000 lbs)

[XEN0]

I am using the TurboTax Business Desktop 2023 to submit Form 1120S and need to add a used vehicle (under 6000 lbs) which was purchased for 20K by the S-Corp.

While entering the asset under 'Depreciation of Assets (and Section 179)' I get the final result as
First-year Expense Deduction (Section 179): 0
Special Depreciation Allowance: 16K
Amount to be depreciated over 5 years: 4K

However according to the article https://turbotax.intuit.com/tax-tips/small-business-taxes/business-use-of-vehicles/L6hi0zzzh for 2023 I was expecting the final result to be
First-year Expense Deduction (Section 179): 12.2K
Special Depreciation Allowance: 7.8K
Amount to be depreciated over 5 years: 0

How do I enter the asset in the Desktop edition so that the Section 179 deduction of 12.2K gets applied correctly along with the bonus depreciation of 8K on Form 4562?

[Mike9241 · Accepted solution]

The tax code limits depreciation deductions for passenger automobiles, such as cars, light trucks, and light vans. Such vehicles are subject to special depreciation limits, also known as “luxury auto depreciation rules.”

The maximum auto depreciation deductions for new and used passenger autos placed in service in 2023 are:

• Year 1: $12,200 ($20,200 if you claim bonus depreciation)

you need to take $20K of 179 to fully depreciate the vehicle in year 1

if you take only $12,200 of section 179 that leaves $7,800 of an undepreciated basis. Bonus depreciation is limited to 80% of this.

the reason for only 16K of bonus is the 80% limit (applied to the 20K since no 179 elected) 

Turbotax does not assume any 179 because it's elective and does not have to be the maximum whereas to not take bonus you must elect out

[XEN0]

Taking the whole $20K of 179 makes the accounts a bit easier but was wondering if there is a reason why Turbotax recommends taking the 16K of bonus and depreciating the remaining 4K? ie does bonus depreciation have any advantages over 179 deduction?

[PatriciaV · Accepted solution]

Yes. Special "Bonus" Depreciation is not subject to recapture, which can occur with Section 179.

You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. In the year the business use drops to 50% or less, you include the recapture amount as ordinary income. You also increase the basis of the property by the recapture amount.

Also, if you have taken Section 179 Deduction for an asset, and then dispose of that asset before it reaches the end of its useful life, you may be subject to Depreciation Recapture. This would increase a taxable gain on the asset sale.