2022 Proseries limited depr to -0- on a under 6,000 lb SUV that took the SDA on the 2017 tax return

[dsacpa]

Under 6,000 lb SUV purchased 6/1/2017 for $41,000.  Took $11,560 SDA on 2017 tax return with -0- other depr exp.  Took regular depr in 2018-2021 of $5,700, $3,450, $2,750, $2,750 for a total of $13,300.

We expected to take $2,750 of reg depr again in 2022, but Proseries is limiting depr to $-0- for 2022.

Why?

[TaxGuyBill]

Was it 100% business use in 2022?

Do you mean $2075 (not $2750)?

Special Depreciation was 50% in that year, right?

[dsacpa]

Sorry, yes we expected 2,075/yr (not 2,705).

Yes, I believe it was 50% in 2017, but we were limited by the SUV rules to max of $11,560

[rbynaker]

I seem to remember there was some weird interaction between bonus depreciation and auto limits but I've googled different things and can't seem to find anything at all now.  @TaxGuyBill is the rock star on these things.  From my (less reliable every day) memory, I researched it a few years ago and concluded that $0 was somehow "correct" at the time with depreciation resuming in year 7.  If you look at the future depreciation (I think ProSeries has a button hiding somewhere on the Asset Info Wks) does it show depreciation resuming next year?

Rick

[TaxGuyBill]

Was it 100% business use in 2022?  If not, that is likely the cause.

If it was 100% business use, then as Rick says, it may be the bizarre rules of the Luxury Limits.

This example uses the 'tables' for depreciation, but ProSeries uses the 'math' way of doing it, so these numbers may not necessarily match your number.

If it wasn't for the Luxury Limits for the $41,000 vehicle, this would be the depreciation schedule:

1. $24,600 ($20,500 SDA plus $4100 regular)
2. $6560
3. $3936
4. $2362
5. $2362
6. $1180

The Luxury Limits not only limit the amount, but it says the 'excess' amounts can't be used until AFTER the Recovery Period (year 7).

So in year 1, the $20,600 is limited to $11,560, so the 'excess' $9040 can't be used until year 7.

In year 2, the $6560 is limited to $5700, so the 'excess' $860 can't be used until year 7.

That happens every year.

So with all of the excess amounts being pushed to year 7, sometimes you run out of 'usable' amounts before the 5/6 year Recovery Period ends.  But then it starts back up in year 7.

[dsacpa]

Thanks Rick and TaxGuyBill.  Both of you offer valid info, but I'm still not sure it's working correctly. The business use was 100% in all years. The idea of having excess deductions each year not available until year 7 doesn't make sense to me. I too have researched this, but can't find anything to back up no depr ded for year 6.

I also ran the Asset Life History report in the 2021 tax program and although showing depr in year 6 (2022) of $1,188 vs. $2,075 expected, Proseries does show depr in 2022.  In the 2022 tax program it's calculating -0- depr ded and now the Asset Life History report shows -0- depr allowed for 2017-2022 and then beginning in 2023 it allows $2,075 / yr until 2037.

Sumpin just doesn't look right.  I'm calling Proseries.

Thanks and stay tuned (if interested).

Dave

[dsacpa]

Called Proseries and it appears to be a bug in the program. They're researching.

[TaxGuyBill]

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@dsacpa wrote:

The idea of having excess deductions each year not available until year 7 doesn't make sense to me.

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I agree it doesn't make sense, but that is what the crazy people in Congress wrote.

§280F(a)(1)(B):

(B) Disallowed deductions allowed for years after recovery period

(i) In general

Except as provided in clause (ii), the unrecovered basis of any passenger automobile shall be treated as an expense for the 1st taxable year after the recovery period. Any excess of the unrecovered basis over the limitation of clause (ii) shall be treated as an expense in the succeeding taxable year.

When they came out with 100% Bonus depreciation, the IRS created as special rule/procedure because otherwise NO depreciation would be allowed from years 2 through 6.   Below is a link to that, and I copy-and-pasted a couple of sentences below to show how bizarre it would be if they did not create that special rule.  While you aren't dealing with 100% bonus, the 50% bonus can create some weirdness (and it doesn't fall under this special IRS rule for 100% bonus).

https://www.irs.gov/pub/irs-drop/rp-19-13.pdf

 if a calendar-year taxpayer places in service in December 2018 a passenger automobile that costs $50,000 and is qualified property for which the 100-percent additional first year depreciation deduction is allowable, the 100-percent additional first year depreciation deduction and any § 179 deduction for this property is limited to $18,000 under § 280F(a)(1)(A)(i) (see Table 2 of Rev. Proc. 2018-25) and the excess amount of $32,000 is recovered by the taxpayer beginning in 2024, subject to the annual limitation of $5,760 under § 280F(a)(1)(B)(ii)

[rbynaker]

Thanks!  I'm curious, let us know how this turns out.

Rick