Help Understanding Why Depreciation Amount Same for Tax Year 2021 and 2022

[JohnJacob]

Quick Background:

• Married filing jointly
• One spouse has a salary, the other has income from small sole proprietorship

In November and December of 2021, we bought a computer and cell phone. For tax year 2021, using Turbotax Home and Business, we deducted part of the cost of those two items.

• Computer, 10% business use, purchase cost $789
• Cell phone, 25% business use, purchase cost $394

For tax year 2021, on Form 4562, TurboTax shows a special allowance of $79 for the computer and $99 for the phone.  Those numbers, I do understand. They are 10% and 25% of the items' purchase price.

But now for tax year 2022, TurboTax again shows that I am deducting $79 and $99 for those two items.  Why is the amount deducted the same as last year?  I thought the amount I can deduct would decrease every year.

[RobertB4444]

Straight line depreciation is the same every year except for the first and the last.  Looks like you depreciated the computer over ten years and the phone over 4.  So the depreciation looks correct.

@JohnJacob 

[JohnJacob]

Straight line depreciation over ten years, that would make sense. 

But my Form 4562 from tax year 2021 says I used "200DB/MQ" for both the phone and the computer.  The life of the phone is 7 years and the life of the computer is 5.

Ah, but because I am using the both the phone and computer less than 50% for the business means I actually can not use bonus depreciation.  Instead, I must use straight line because the rules for the double depreciation and section 179 epxensing both require recapture of the depreciation when business use of the asset falls below 50%.  So if business use starts at less than 50%, straight line depreciation is really the only option.

Is that right?

If so, isn't it confusing that TurboTax shows the deprecation method on Form 4562 as "200DB/MQ" ?

[ThomasM125]

If the computer cost $789 and you had 10% business use, the basis for depreciation would be $79. If you divide that up over 5 years the depreciation would be $16 per year. You would have to look on form 4562 in 2021, on line 19(b) to see what the first year depreciation was. It would be a similar amount for the second year. I'm not sure why TurboTax refers to it as 200 DB, but my assumption is there is an exception for propery used less than 50% in a business under the 200 DDB method that results in straight line treatment.

Since you say your depreciation is $79 for the first year, then it looks like the 10% business use was not entered so you need to review the asset entry to make sure it was correct.

[JohnJacob]

This is the worksheet for Form 4562 Tax Year 2021.  Unless I'm misreading it, this shows I did report 10% business use of the computer and 25% business use of the cell phone.  The dollar amount depreciation for tax year 2021 is just that, 10% the cost of the computer and 25% the cost of the cell phone.

But I don't understand why I'm seeing those exact same amounts again for tax year 2022. 

[HopeS · Accepted solution]

You already took the special bonus depreciation in 2021 and got the full 10% and 25% depreciation expense for the computer and cell phone respectively.

There is no additional deduction to be taken this year.

In the future,  you do not need to depreciate your cell phone. You can take the business percentage usage on Sch C.

@JohnJacob 

[JohnJacob]

@HopeS  Hmm, you know, you're right!  ha, I was so confused.

So this screen from my tax year 2022 file was throwing me off, making it look like I was getting another $79 and $99 depreciation deduction for tax year 2022.  But that must only be what the program imported from last year.

Because here on this screen it pretty clearly shows I am not getting that $99 and $79 depreciation again for tax year 2022.

  The rules for depreciating property are pretty complicated. 

I am also recording cell phone usage and internet usage as a business expense. 

[JohnJacob]

@HopeSThanks!