What the IRS Guidance Says:

• Publication 946 (How to Depreciate Property) states that when a vehicle is subject to luxury auto limits, if MACRS would have allowed a larger deduction, the excess basis continues to be depreciated in later years until fully recovered.
• IRS Regulation Section 1.280F-2T(i) states that in years after the first year, if there is unrecaptured basis due to the luxury auto limits, you continue to depreciate it under MACRS subject to the annual limits.
• The depreciation calculation does NOT reset to straight-line based on 1/5th of the cost unless electing ADS.

What Lacerte is Doing Wrong

1. No IRS Guidance Supports a 1/5th Cost Rule: There is no provision in Section 280F, Pub 946, Pub 463, or Form 4562 Instructions that states that the adjusted basis for depreciation should become 1/5th of the cost.
2. MACRS with Unrecovered Basis Still Follows MACRS Rules: The correct calculation method should be to apply MACRS percentages to the remaining basis, subject to the 280F limits—not artificially resetting the basis to 1/5th of the cost.
3. Lacerte 2023 Got It Right, 2024 Got It Wrong:
   • The 2023 Lacerte approach correctly used the remaining basis ($16,800) for 2024.
   • The 2024 Lacerte approach incorrectly resets the basis to $7,400 and calculates depreciation as if it were ADS straight-line (which is not how MACRS works).