How to depreciate an asset after taking 80% bonus depreciation?

[Chris2012]

I notice the bonus depreciation drops to 80% for 2023. So if we take 80% bonus depreciation this year, what happens to the remaining 20%? Is it going to be depreciated over the life of an asset, or we can take the whole 20% off next year (2024)?

[DianeW777]

Yes, it will be depreciated over the recovery, or life, of the asset.  That means a percentage of the remaining 20% for each of the years starting with the year placed in service and each year until the end of the recovery period.

[Chris2012]

Thank you very much!

I still have a question. So a 5-year property using Half-Year Convention MACRS can be depreciated 20% in Year 1 and 32% in Year 2.  Is it 20% of the original basis? Or 20% of the 20% remaining basis?

Example, a $10,000 5-year asset:

Year 2023: depreciate $8,000

Year 2024: depreciate $2,000 x 20% = $400? or depreciate $10,000 x 20%= $2,000?

Or 

Year 2023: depreciate $8,000 + $2,000 x 20% = $8,400 

Year 2024: depreciate $2,000 x 32% =$640

Thank you for your help again! 

[ThomasM125 · Accepted solution]

The second scenario is the correct one. In the first year, you get the bonus deprecation plus the MACRS depreciation rate times the cost less the bonus depreciation. Each year after you apply the rate for that year times the cost less bonus depreciation.

[Mike9241]

note that as of now section 179 is still allowed so you may be able to take 100% deprection the first yer. beware that the 179 deduction is limited to net business income before the deduction

[as744]

Wait I'm super confused now.

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

Is Option 1, Option 2, Option 3 correct for the depreciation deduction? And can we even do safe harbor in 2023 (https://www.irs.gov/pub/irs-drop/rp-19-13.pdf)?

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

[fanfare]

the depreciation in the next year 2024 after taking 80% in 2023 

will the same amount as if you had declined the bonus depreciation, assuming straight line.

That is my understanding.

@Chris2012 

[as744]

I dont get what you're saying

[as744]

I dont get what you mean by this? So you're saying no more deductions after 2023? You're the first person I hear this from.

[marwanio]

I wonder what happens to the excess basis above the $20,200 limit? Is that recoverable?