How to depreciate a vehicle in 2023 used for 100% business using bonus depreciation

[as744]

Assume I'm buying a $50,410 car (Tesla model 3) in 2023 for 100% business use and I take bonus depreciation.

Is Option 1, Option 2, Option 3 correct for the depreciation deduction?

Option 1

2023: $20,200

2024: ($50,410  - $20,200) * .32 = $9,667.2

2025: ($50,410  - $20,200) * .1920 = $5,800.32

2026: ($50,410  - $20,200) * .1920 = $5,800.32

2027: ($50,410  - $20,200) * .0576 = $1,740.09

Option 2

2023: $20,200 + ($50,410 - $20,200) * .2 = $26,242

2024: ($50,410  - $20,200) * .32 = $9,667.2

2025: ($50,410  - $20,200) * .1920 = $5,800.32

2026: ($50,410  - $20,200) * .1920 = $5,800.32

2027: ($50,410  - $20,200) * .0576 = $1,740.09

Option 3

2023: $20,200

2024: ($50,410  - $20,200) * .32 = $9,667.2

2025: ($50,410  - $20,200 - $9,667.2) * .1920 = $3,944.2

2026: ($50,410  - $20,200 - $9,667.2 - $3,944.2) * .1920 = $3,186.9

2027: ($50,410  - $20,200 - $9,667.2 - $3,944.2 - $3,186.9) * .0576 = $772.5

And can we even apply safe harbor in 2023 (https://www.irs.gov/pub/irs-drop/rp-19-13.pdf)?

Additionally, will bonus depreciation be the best bet for maximizing deductions (assuming im not using the standard mileage) for a vehicle.

[tagteam]

See Solved: Re: Vehicle Purchase (intuit.com)

Was your question not answered in the above thread?

[as744]

No

[tagteam]

@Mike9241  wrote: option 1 but you must reduce the depreciable basis by any EV credit allowed or allowable. 

[as744]

Yes but I’m confused because how can we still apply MACRS. 

The safe harbor method was introduced to allow you to take bonus + depreciate the 4 years after. Please see page 9 https://www.irs.gov/pub/irs-drop/rp-19-13.pdf

However that ended in 2022 as per the IRS in this update: https://www.irs.gov/newsroom/irs-provides-a-safe-harbor-method-of-accounting-for-passenger-automobil...

So doesn’t that mean after bonus depreciation in year 1 you can’t depreciate until year 6 as per: https://www.currentfederaltaxdevelopments.com/blog/2019/2/14/safe-harbor-for-luxury-autos-and-bonus-...

[Mike9241]

autos are 5 years MACRS property (double declining balance 1/5 or 20% each year * 2 = 40% on the remaining undepreciated basis switching to straight line when that produces a greater depreciation. The first year is subject to either the 1/2 year or mid-quarter convention) so it takes at least 6 years to fully depreciate it.  see IRS pub 946 table A1. Deprecation for luxury autos (ie listed property IRC 280F PUB 946 chapter 5) is limited to a max each year so if you bought a $200K car in 2023 it would take about 26 years to become fully depreciated. 

for non-luxury first reduce by any bonus or 179 depreciation -

the remainder if the first year is not subject to the mid-quarter convention (the MQ applies when 40% of cost of certain depreciable assets is put into service in the last 1/4 of the year)

year 1   only allowed 20% under the half-year convention

year 2  100% -20% leaves 80% remaining basis @ 40% =32% on original depreciable basis after bonus/179

year 3  80%  - 32%  leaves 48% remaining basis @40% = 19.2% on original depreciable basis after bonus/179

for 2023 iRS rev proc 2023-14 determines the maximum depreciation each year for autos 

page 6 table 1 if bonus taken 

page 7 table 2 if no bonus taken

so when do these limits apply

$12200 - no bonus per table 2 year 1 divided by 20% or times 5 gives us $61000

add $8000 maximum bonus and then the limit would apply to a $69000 vehicle

less than these amounts and it is the 5 year MACRS table rate after any reduction for bonus/179

note that if the vehicle is for hire like a limo or cab then these limits do not apply  

[as744]

Can you please explain to me what depreciation would look like for year 1-5 for a Tesla model 3 purchased in cash in 2023 for 100% business? 

The initial cost is $50,400. With tax it’s $56,000. $7,500 ev credit.