There appears to be a depreciation error on calculating 2024 Depreciation Vehicle subject to 280F Limitations that used SDA in 2023

[Continuouslearner]

There appears to be a Lacerte Depreciation Error that I am trying to confirm as the Lacerte programmers have indicated that the calculation is correct as is and vaguely referred to Form 4562 instructions and Pub. 946, neither of which addresses the discrepancy issue, other than tell us what the annual depreciation limit is under the luxury auto limitation rules, which is $19,500 for a 2023 placed in service vehicle depreciation cap in 2024.

Here is the issue - a 2023 vehicle was purchased  for $37,000 and placed in service on 3-6-23 using 5 YR 200DB HY MACRS method subject to limitations as it is a vehicle under 6,000 lbs and doesn't qualify for any of the limitation exceptions. In 2023 Lacerte, $20,200 of SDA leaving an adjusted basis of $16,800 for 2024. The 2023 Lacerte program shows that the depreciation for 2024 on its 2024 Depreciation Schedule should be $16,800 X the 2024 Sec. 280F limitation of .32 = $5,376. The 2024 Regular Depreciation Schedule says no that's not right, that "WHEN THERE IS UNRECOVERED BASIS, CURRENT DEPRECIATION IS CALCULATEC USING THE MACRS TABLE WITH A DEPR. BASIS of 7,400 TIMES THE TABLE RATE OF 0.3200 SUBJECT TO SEC. 280F LIMITS." This results in depreciation of 7,400 X .32 = $2,368 instead of $5,376. 

I have not found any justification for using $7,400 as the adjusted basis in 2024. I see that Lacerte is calculating that as 1/5 of the cost of the vehicle and I don't see in the Section 280F regulations, nor in the Pub 946, nor in the Pub. 463, nor in the 4562 instructions that the adjusted basis changes to 1/5th of the value of the asset. The 2025 Depreciation Schedule in 2024 Lacerte also is using an adjusted basis of $7,400. Whan I test this calculation out using $25,000 as the cost instead of $37,000, I get the adjusted basis as $5,000, which again is 1/5th of the cost of the asset.

So, either the 2023 Lacerte version of the 2024 Depreciation Schedule is wrong and 2024 Lacerte's version of the 2024 Depreciation Schedule is right, or vice versa as they both can't be right.

Where can I find justification for this 1/5th rule as Lacerte support and programmers haven't found it but is indicating it as being correct? I have searched everywhere it appears. I even tried using 4 different AI search engines (which you have to be careful with using as their answers can either be wrong or can change depending on when you ask the question), all of which tell me that there is an error in the  2024 Lacerte program, that the 2023 Lacerte version of the 2024 Depreciation Schedule is correct at $5,376,  and there is no justification for the Straight-line method of 1/5th the cost basis being used in the 2nd and subsequent years to calculate depreciation.

[Continuouslearner]

I forgot to mention that I was in the S-Corp 2024 Lacerte when I discovered the possible depreciation error but tested the depreciation in the 1040 module for Sch. C and got the same results as the S-Corp module.

[Strongsilence-CPA]

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).

[rbynaker]

The short answer is that the safe harbor defined in IRS Rev. Proc. 2019-13 expired when 100% bonus depreciation ended.  There's a KPMG article confirming this.  "The safe harbor method does not apply to a passenger automobile placed in service by the taxpayer after 2022"

So in 2023 with an 80% bonus depreciation you remove 80% of the basis of the asset to give to Section 168(k), that leaves 20% of the asset left to go through regular depreciation.  Under the "normal" rules the excess over the Section 280F limits only comes back after we fall off of the 6-year MACRS table.  RP-19-13 was extremely taxpayer friendly for as long as 100% bonus depreciation applied.  But now we're back to the law of unintended consequences.

My math looks something like this:

	Cost	$37,000
	Bonus 80%	$29,600
	Regular	$7,400	Bonus	Limit	Lesser Of	Excess	Carry To
2023	20%	$1,480	$29,600	$20,200	$20,200	$10,880	2029
2024	32%	$2,368		$19,500	$2,368	$0
2025	19.20%	$1,421		$11,700	$1,421	$0
2026	11.52%	$852		$6,960	$852	$0
2027	11.52%	$852		$6,960	$852	$0
2028	5.76%	$426		$6,960	$426	$0
2029	Excess	$10,880		$6,960	$6,960	$3,920	2030
2030	Excess	$3,920		$6,960	$3,920	$0

Is that what you're seeing in Lacerte 2024?  My guess is the programmers didn't look beyond 12/31/23 for the 2023 software, then they had to correct it for 2024.

Rick

[TaxGuyBill]

I agree with Rick.

The Special Depreciation Allowance was $29,600.  Just because §280F limited that and threw it to year 7 does not change that the Special Depreciation Allowance is 80%.