Straight line full month depreciating asset

[elderblaze]

I have a vehicle my accountant setup as Straight Line Full month depreciating asset. I don't see any way to select this in TurboTax... only MM, MQ, and HY options. Now what?

[Anonymous_ · Accepted solution]

See https://www.irs.gov/publications/p463#en_US_2021_publink1000134864

Contact your accountant as there is no such convention as "full-month" (only mid-month, mid-quarter, and half-year).

[elderblaze]

thanks for your reply. I wonder how I Fix this issue? it has been this way since 2019, and we are on the 3rd year of depreciation. I found this definition for full month.

"Full-month: An asset has an equal depreciation amount every month, starting with the first month in service and continuing throughout its useful life."

but I guess you are saying this is not an approved way to depreciate a vehicle asset. If I change it to Straight Line MQ will this cause an issue moving forward?

[Critter-3]

You cannot change the method of depreciation without getting the IRS permission.   Look at the depreciation worksheet the accountant should have included in your packet to see exactly which method you were using.  The usual method is HY unless you were required to use the MQ method.  A car cannot use the SL or MM methods.

[elderblaze]

Turbotax allows me to force SL method for a vehicle. It does not allow the convention to be changed to FM however. Can you change the convention type without changing the method? is this allowed? keep it SL but change from FM to MQ or HY? Im running up against the deadline and I need to get this issue sorted one way or another. I'd hate to drop the asset entirely, as it does have 2 more years of depreciation and is a substantial write off, I also don't want to get into any kind of trouble.

[Critter-3]

There is no such thing as FULL MONTH  in the depreciation world.  Using the info on the depreciation worksheet you should have been provided by the prior preparer  OR  the form 4562 the first year you started depreciating that vehicle you have all  the infoyou need to correctly  enter the asset in the TT system which should match what the IRS has on file.   You cannot just  arbitrarily change the method you are using without IRS permission.  

[Anonymous_]

@Critter-3 is correct; you need to file Form 3115 in order to properly rectify this situation.

See https://www.irs.gov/publications/p946#en_US_2020_publink1000107386

This form is rather complex and requires professional intervention. If you want to try and go the DIY route, then you will basically have to take your chances as you will have entered the audit lottery.

[elderblaze]

Thanks for all your help, I have the 2019 and 2020 tax documents, but it looks like something strange is going on. I have a difficult time telling if my preparer used "Actual Expenses" or "Standard Milage Deduction" for my main company vehicle. If I look at form 4562, I see the Asset listed "Truck" with 100% company use, and no information about depreciation selected. I see the milage information, but no clues to if "Standard deduction" was used for milage, just documented miles driven.. If it is allowed I will attach an image that has no personal information of the section that is so confusing. Is it possible that a vehicle is depreciated as a piece of equipment instead of a vehicle? why would it be done this way?

[Anonymous_]

Please do not take this the wrong way, but is there a reason you cannot contact the accountant (or firm) who prepared the prior returns and created the schedule you posted?

They would certainly know how they handled the asset and could definitively answer all of your questions.

[elderblaze]

I understand, yes I have an email to them. Will just need to wait, as it was sent on friday afternoon, and monday is a holiday.

[Critter-3]

Ok ... so they used the alternate SL method over 5 years which you can as well ... not even sure what is meant by FM ?  Look for a vehicle expense worksheet and see if they used the standard mileage rate or the actual expenses option.  

[depr-mom]

In looking at the schedule you provided, it seems like your preparer used "Actual Expenses" and included the Truck as an asset subject to depreciation.  You should be able to find the depreciation expense from the 4562 flowing to a line on your business schedule (C, or E, or F, etc.) for 2019 and 2020.  You can't claim both depreciation (part of actual expenses) and Standard Mileage. FM or 'full-month' convention is a common convention used for financial reporting (book depreciation) versus tax depreciation. Because the asset was placed in service in July, using a Half-Year convention with SL method (if done correctly) would have resulted in the same depreciation expense calculation (6 full months) as using FM with SL method. The correct calculation of the truck using FM (or HY since placed-in-service 7/1/2019) and SL is attached. See the Calculated Depr line for the correct calculation - literally the cost divided by 60 months with 6 months claimed in the first and last years. The Reported Depr line is what your preparer reported for 2019 and 2020. The Adjustment is the difference. If you enter the accumulated depr into TT as of 2020, then TT will pro-rate the adjustment amount over the remaining 4 years of 2021-2024 resulting in the Reported Depr amounts. The calculation for the Laser 3D Pro, is calculated correctly, so I do not believe any calculation for short years or mid-quarter convention has been applied by your preparer. I provide tax depr guidance to clients as part of my occupation. I would enter it into TT and use the Reported Depr for 2021-2024 in order to claim all of the Depreciation over the life of the asset. 

[elderblaze]

My book keeper said they used the "Standard Mileage Deduction" for the asset, and that their tax software documented/accounted for the depreciation in this method. That is why there is no depreciated asset listed on form 4562. It's a little confusing, but the book keeper said to continue using standard mileage deduction moving forward and I'd be fine. They said the used the regular mileage rate of 57.5 cents per mile, and of that 27 cents per mile was depreciation. I will just use standard mileage deduction moving forward.