Vehicle Depreciation and Bonus SDA

Forum|Forum|1 year ago
September 3, 2024
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Hello. My 2022 TT file was corrupted so I couldn't import. I requested a complete 2022 return from the IRS and started over from scratch, trying to figure out exactly what was done last year.

I am self-employed. I bought a car in 2022 and placed it into service in 6/2022. Last year on TurboTax, I never saw anything about Special Depreciation so I never took it. I never attached a statement declining anything, either. I see a Section 179 Deduction of $12,750. 0 depreciation.

Am I to assume that I used Actual Expenses method for this vehicle? Oddly enough, I had 2 vehicles and the total mileage of them * 0.625 per mile = the deduction I took on Schedule C, Line 9 (Car and truck expenses.) If the old car was Standard and the new car appears to be Actual, how could I have deducted mileage on both?

Second issue. When I go into Form View, Car & Truck Wks, Part VI, Line 36a(2), it says Elect 50% in place of 100% Special Depreciation Allowance. I thought SDA was only for the first year? If so, why is TurboTax allowing me to select Yes/No? Based on the year it was placed into service (2022), shouldn't it know that?

It seems backwards that if I select Yes, my refund jumps by $400 or so. Shouldn't my refund go down if I were to elect 50% rather than 100%?

TurboTax Home & Biz Windows

AmeliesUncle

@ForbidInjustice wrote:
I never attached a statement declining anything, either.

I see a Section 179 Deduction of $12,750. 0 depreciation.

Am I to assume that I used Actual Expenses method for this vehicle? Oddly enough, I had 2 vehicles and the total mileage of them * 0.625 per mile = the deduction I took on Schedule C, Line 9 (Car and truck expenses.)

Second issue. When I go into Form View, Car & Truck Wks, Part VI, Line 36a(2), it says Elect 50% in place of 100% Special Depreciation Allowance.

If you used Actual Expenses but didn't attach a statement saying you elect out of Bonus, that could be a problem. But first let's figure out the rest of it.

Where do you see the Section 179 deduction? Are you looking at line 6 of Form 4562? If Schedule C is showing $0 of depreciation, that indicates you did NOT take Section 179 (or Bonus) and that you used the Standard Mileage Rate.

That is referring to if you made that 50% election in the year it was placed in service. But that wasn't an option in 2022, so it shouldn't even let you do anything with it. If you had made that 50% election (if it was used and allowable, which is was not), you would have more to depreciate this year which is why your refund would increase.

In summary: Based on the fact that Schedule C shows $0 of depreciation and the vehicle expenses match the Standard Mileage Rate, I think you used the Standard Mileage Rate. But we need to figure out what you are looking at when you say you see Section 179 of $12,750 (I suspect you are looking at the wrong line and you are misinterpreting what you see).

ForbidInjusticeAuthor

Hello and thanks for the reply! Schedule C, Part II, Line 13, Depreciation and section 179 expense deduction shows $12,750 and was included in the total expenses (Line 28). Form 4562, Part I, Line 12, Section 179 expense deduction shows $12,750 as well. Line 6 of 4562 Part I (a, b, c) are all blank.

I've been deducting vehicle expenses for business for a decade or more and always used Standard, so it makes sense I would have done so for 2022... but 2022 was the first year I was deducting for a brand new vehicle. So in the back of my mind I thought maybe I did Actual to get a larger deduction? My rationale: Top of 4562 (Page 2) says to only complete 24a, 24b, columns a-c of Section A if you're using standard mileage rate. Well, TT filled in columns (d-i) as well. Based on that, I assumed standard mileage rate wasn't used.

Form 4562: Lines 8, 9, 12 all show $12,750

Form 4562: Section A, Line 26, (h) Depreciation/deduction shows 0 but (i) Elected section 179 cost is $12,750

Both vehicles total to 9060 miles * 0.625 = 5663. Deduction on my Schedule C is 5665. Difference of 2. It's only 2, but this irks me because it shouldn't be close, it should be exact if I used standard mileage rate, right?

At this point, I'm just failing to understand how there seems to have been a Section 179 deduction, yet the mileage seems to point to Standard having been used.

AmeliesUncle

Okay, the 4562 and Schedule C both indicate you took Section 179.

Lines 30-36 of Form 4562 only shows the two vehicles, right? Not an accidental third vehicle?

If lines 30-36 of Form 4562 properly shows only your two vehicles, it is possible that your Actual Expenses (gas, insurance, repairs, etc., not counting depreciation) just happened to correspond with the amount of Standard Mileage Rate. Weird coincidence, but possible. Do you still have your records of expenses to see if that is true?

As for the $2, the deduction on Schedule C is often higher than the Standard Mileage Rate (although ONLY $2 for that large amount of miles is a bit odd). The business portion of vehicle loan interest, tolls, parking and the vehicle registration tax are all added in addition to the Standard Mileage Rate. But as I mentioned in my previous paragraph, at first glance it seemingly is a coincidence that your Actual Expenses are pretty close to the same as the Standard Mileage Rate (besides depreciation).

If you used the Actual Expenses in the first year, that means you must continue to use that method. You are not allowed to use the Standard Mileage Rate for that vehicle.

Am I correct that the business portion of the total vehicle cost was higher than $12,750? Or was that the total cost of the business portion of the vehicle?

Now we turn the conversation back to Bonus depreciation. You said you did NOT make the election to elect out of Bonus. The short story is that really messes up your depreciation for five years and you won't be able to start to depreciate the rest of it until the 6th or 7th year. I think it may be an option to amend to undo the Section 179 election for 2022 though; that is likely to have better results (it would give you Bonus depreciation for 2022 and then regular depreciation for the following years; however depending on the circumstances the Bonus amount for 2022 could be different than your Section 179 amount).