Common questions when entering vehicles and vehicle related credits in Lacerte

Form 8936 has received significant updates for tax year 2023 and 2024. As a result, we have a article detailing the new input method for both individual and business returns:

Generating Form 8936, Clean Vehicle Credit in Lacerte

This article also includes instructions at the end for generating Form 8936 in 2022 and earlier years.

Maximum Credit for Form 8936

The maximum amount of credit for the business/investment use part of an electric vehicle is $2,500. However, according to an IRS announcement, additional amounts may be added to that base amount under certain conditions. The additional credit is available for vehicles with at least four wheels and a capacity of more than 5 kilowatt hours (kwh) capacity. The credit maximum increases $417 for each kwh in excess of 5 kwh, up to $7,500.

To increase the maximum tentative credit amount:

1. Go to Screen 34, General Business and Vehicle Credits.
2. Select Vehicle Credits (8910, 8936) in the section list
3. Scroll down to the Form 8936 subsection.
4. Enter the Kilowatt hour capacity (vehicle with at least four wheels) (8936) (x.xxx).

Additional information:

• Make sure to leave the Cost of two-wheeled vehicle (8936) field blank, since the additional credit is only allowed for vehicles with four or more wheels.
• If you don't know the kilowatt hour capacity of your vehicle, you can enter the Tentative credit (8910, 8936) [Override] amount as provided by the manufacturer of your vehicle, instead. The maximum credit for many vehicles can be found on the IRS website, here.

Form 8910 was used to report the Alternative Motor Vehicle Credit. This credit expired for vehicles purchased after 2021. Lacerte 2022 still allowed input for when a vehicle was purchased in 2021, but wasn't placed in service until 2022. Lacerte 2023 no longer offers Form 8910.

If the vehicle is being depreciated in Screen 22, Depreciation, make the entries in Alternative Motor Vehicle Credit (8910) section under Automobiles and Other Listed Property in Screen 22.  Do not duplicate the entries in Screen 34.

To generate Form 8910 for Tax Years 2018 to 2022:

1. Go to Screen 34, General Business and Vehicle Credits.
2. In the section list on the left side of the screen, select Vehicle Credits (8910, 8936).
3. Enter 1 in the field 1 = alternative motor vehicle (8910), 2 = plug-in electric drive motor vehicle (8836).
4. Enter Date placed in service and Vehicle identification number (VIN)
5. For Tax Year 2018 returns, Select the appropriate vehicle in Alternative motor vehicle type (8910) (Ctrl+T).
   Note: If the alternative motor vehicle type isn't available, enter the information detailed in Step 6
6. For Tax Year 2019-2022 return, enter the following information:
   • Year
   • Make
   • Model
   • Tentative Credit
7. If used for business or investment, enter the applicable information under Business or Investment Use Percentage.
   • Total mileage.
   • Business mileage.
   • Maximum credit [O].

To generate Form 8910 for Tax Year 2017 and earlier:

1. On the Detail tab, select Screen 34, General Business and Vehicle Credits.
2. In the section list on the left side of the screen, select Vehicle Credits (8834, 8910, 8936).
3. Enter a 1 in Vehicle Credit type: 1 = alternative motor (8910), 2 = plug-in electric (8834), 3 = plug-in electric drive motor (8936)
4. Enter the Date placed in service.   
5. Enter the appropriate amount in Cost of Vehicle (8834) or plug-in conversion cost (8910).  If the vehicle is a plug-in conversion and qualifies to be claimed on Form 8910, enter the cost of the converting the vehicle to a plug-in. This amount is used to complete Form 8910, part I.
6. If used for business or investment complete the mileage in the section labeled Business or Investment Use Percentage.
7. Select the appropriate vehicle in Alternative motor vehicle type (8910) (Ctrl+T).

• You can use Form 8834 to claim any qualified electric vehicle passive activity credit allowed for the current tax year.
• This form only applies to qualified electric vehicle passive activity credits from prior years (allowed on Form 8582-CR or Form 8810 for the current year). For the current tax year, this credit would be allowed on:
  • Form 8582-CR, Passive Activity Credit Limitations (for individuals, trusts, and estates), or
  • Form 8810, Corporate Passive Activity Loss and Credit Limitations (for corporations)

To enter a prior-year carryover of this credit to generate Form 8834:

1. Go to Screen 34, General Bus. & Passive Act. Credits.
2. Scroll down to the Prior Year Unallowed Credits section.
3. Locate the grid under the Other Passive Credit Carryovers subsection.
4. For the Credit Type (Ctrl + T), select Qualified plug-in electric vehicle.
   • For 2022 and prior years, this is under the Form 3800, Part III, Line 1 Credits
   • For 2023, this under Form 3800, Part IV, Line 2, Credits with Carryforwards Only
5. Enter the applicable amount in the General Business Credit column.

Perform the following steps to claim this deduction on the Schedule A:

1. Go to the Screen 25, Itemized Deductions.
2. Scroll down to the Taxes section.
3. Locate the Sales tax on autos not included above, it is under the heading Sales and Use Taxes
4. Enter the desired amount.

This amount will flow to Line 5 of the Schedule A when the general sales tax checkbox is checked on the form.

If you wish to show the deduction on Line 7 of the Schedule A as a Personal property tax, perform the following steps.

1. Go to the Screen 25, Itemized Deductions.
2. Scroll down to the Taxes section.
3. Locate the Personal property taxes (including value based automobile fees), it above the Other Taxes heading.
4. Enter the desired amount.

To enter a donated vehicle:

1. Go to Screen 26, Non-cash Contributions (8283)
2. Complete the Donee information under the Non-cash Contributions (8283) section
   • Name of charitable organization (donee)
   • Street address
   • City
   • State/ZIP code (if U.S. address)
   • Region/ZIP code/Country (if Foreign address)
3. If the contributions is $5,000 or less
   1. Scroll down to the Contributions of $5,000 or Less section
   2. Complete the information under the Vehicle subsection
      • Vehicle identification number
      • Year
      • Make and model
      • Condition and mileage
   3. Enter the Date of contribution (negative date = various)
   4. Complete the information under the Items Valued at More than $500 (if applicable)
      • Date acquired (negative date= various) (m/y)
      • How acquired (Ctrl+T or describe)
      • Donor's cost or basis
      • Fair market value
      • Method used to determine fair market value (Ctrl+T or describe)
   5. This information will flow to Form 8283, Part I, Section A.
4. If the contribution is $5,000 or more
   1. Scroll down to the Contributions of More than $5,000 section
   2. Select Vehicles for the Type of property donated (Ctrl+T)
   3. In one of the Property sections (ex: Property A), complete the information:
      • Description of donated property
      • Model Year, if vehicle
      • Date Acquired by donor
      • Donor's cost or basis
      • Fair Market Value
   4. This information will flow to Form 8283, Part I, Section B

Note:  Form 8283 will only generate if total Itemized Deductions is more than the Standard deduction or Schedule A is generating.

This can be entered in the following screens:

• Screen 30, Vehicle / Emp. Bus. Expense in the Vehicle Expenses section under Actual Vehicle Expenses.
• Screen 22, Depreciation, in the Automobiles and Other Listed Property section under Actual Vehicle Expenses.
• Screen 23.2, Direct Input (continued), in the Part V, Section B - Listed Property section under Actual Vehicle Expenses.

In Inclusion Amount (enter as positive), enter in full (and as a positive number) any lease inclusion amount associated with this vehicle. The inclusion amount must be manually calculated. Refer to IRS Form 2106 instructions or IRS Pub 463 for more information on inclusion amounts.

If the actual expense method is used, this entry is deducted from the entry in Vehicle Rent or Lease Payments. The program applies the vehicle's business use percentage to the result, and deducts the amount on the applicable form or schedule.  The business use percentage is calculated based on entries in Total Mileage and Business Mileage located in this input section.

Depreciation Recapture For Vehicles With Business Use Less Than 50% for Form 4797 Page 2 Part IV.  When a vehicle's business use dropped to less than 50%, you will typically need to recapture the 179 deduction and depreciation and report it on the return.

Perform the following steps to recapture depreciation:

1. Go to Screen 17, Dispositions.
2. On the left side of the screen or under the grid input, select Carryovers/Misc
3. Scroll down to the section titled Form 4797. 
4. Complete the following under Recapture 50% or Less Business Use.
   • Section 179 Expense Deduction
   • Depreciation allowable
   • Section 280F recovery deduction (If applicable)
   • Recovery deduction allowable (If applicable)
5. Once you have entered this information, View the From 4797, page 2, Part IV
6. Take note of the amount of recapture. This will need to be entered on the corresponding business activity as Other Income

Additional Information:

IRS instructions for Form 4797, line 35:

Subtract line 34 from line 33 and enter the recapture amount as "other income" on the same form or schedule on which you took the deduction. For example, if you took the deduction on Schedule C (Form 1040), report the recapture amount as other income on Schedule C (Form 1040).

Per IRS instructions you may also want to adjust the depreciation basis for the item. To do this, enter an additional line in the basis of the asset with a description for your records.

To apply the $25,000 Section 179 limitation for sport utility vehicles over 6,000 lbs:

1. Go to the Depreciation screen:
   • Screen 22, Depreciation (Individual)
   • Screen 14, Depreciation (Partnership)
   • Screen 21, Depreciation (Corporate)
   • Screen 16, Depreciation (S Corporate)
   • Screen 39, Depreciation (Exempt Organization)
2. Click Add or Select an existing asset from the left navigation panel.
3. Enter the following depreciation information for the new asset as applicable:
   1. Enter the Description of Property.
   2. Select the Form from the drop down menu.
   3. Select the Activity Name or Number.
   4. Select 1=Automobiles / Transportation Equipment from the Category drop down menu.
   5. Enter the Date placed in Service.
   6. Enter the Cost or Basis.
4. Enter the Current Sec. 179 expense elected for this asset.
5. Select one of the following for the Method:
   • 43=MACRS 5-year % Vehicles over 6000lbs. No Limits
   • 44=MACRS 5-year SL Vehicles over 6000lbs. No Limits
6. Scroll down to the Automobiles and Other Listed Property section.
7. Check the box Sport utility vehicle over 6,000 pounds.
   • This entry is required to limit the Section 179 expense for these vehicles. Some states treat SUVs differently and this code is used to designate the vehicle as an SUV for state purposes as well.
8. Enter all other applicable information about the vehicle.

1. Open the Depreciation input screen.
2. Click Add or Select an existing asset from the left navigation panel.
3. Enter the following depreciation information for the new asset as applicable:
   1. Enter the Description of Property.
   2. Select the Form from the drop down menu.
   3. Select the Activity Name or Number.
   4. Select 1=Automobiles / Transportation Equipment from the Category drop down menu.
   5. Enter the Date placed in Service.
   6. Enter the Cost or Basis.
4. Select the appropriate Method (Ctrl+T):
   • 45 = MACRS 5 year % Truck under 6000lbs Limits Applied
   • 46 = MACRS 5 year SL Truck under 6000 lbs Limits Applied
   • 55 = MACRS 5 year %
   • 56 = MACRS 5 year SL

The program applies luxury car limitations to assets with MACRS methods 45, 46, 55, or 56 and ACRS methods 30 or 31.  The program limits the depreciation on luxury automobiles according to the rules in the instructions to Form 4562.

Lacerte is calculating special depreciation for a vehicle per Revenue Procedure 2011-26 for the current year; however, the following year depreciation schedule is showing Regular depreciation that was never taken in the current year.

What is Rev Proc 2011-26?

From Rev Proc 2011-26 3.03(5)(c)(i):

• If the unadjusted depreciable basis (as defined in 1.168(b)-1(a)(3)) of a passenger automobile (as defined in 280F(d)(5)) that is qualified property eligible for the 100-percent additional first year depreciation deduction exceeds the first year limitation amount under 280F(a)(1)(A)(i), the excess amount is the unrecovered basis of the passenger automobile for purposes of 280F(a)(1)(B)(i) and, therefore, is treated as a deductible expense in the first taxable year succeeding the end of the recovery period subject to the limitation under 280F(a)(1)(B)(ii).

Since the amount of unrecovered basis equals the cost of the auto less the limits (11,060 or 11,260) there is no depreciable basis for the current year.  To let taxpayers to claim a current year expense for automobiles Rev Proc 2011-26 provides a safe harbor method for calculating current year depreciation.

If the Taxpayer has an automobile that qualified for 100% bonus depreciation in 2010 or 2011.  Revenue Procedure 2011-26 describes an alternate method of calculating depreciation for recovery years after the first year the qualified automobile was placed in service.  In compliance with Revenue Procedure 2011-26, Lacerte will:

1. Calculate Depreciable basis and prior year depreciation as if 50% bonus depreciation were taken
2. Take the difference between those amounts and multiplies it by the DB/SL Formula rate to arrive at current year depreciation.

Note: The "as if" Prior depreciation amount is only used to help illustrate the current year calculation.  It will not impact this or future returns.

Example:

• A Vehicle was placed in service in 2011 for 25,000 with method 56 being applied.
• The 2011 Depreciation schedule shows special depreciation allowance of $11,060 (per rev proc 2011-26).
• The 2012 Depreciation Schedule shows the prior year Special Depreciation Allowance of $11,060, but also shows prior depreciation of $1,250 that was never taken in 2011.

In order for Lacerte to calculate the 2012 current depreciation correctly, the Depreciation Basis on the 2012 Depreciation Schedule will show as if 50% bonus depreciation was taken and then calculates regular prior depreciation using the SL/DB Formula.

Using the example above with the following formula:

• 2012 Depreciation Basis (as if 50% SDA was taken) x SL/DB Formula= Prior depreciation on the 2012 Depreciation Schedule.
  • 12,500 x 10% = 1,250
• Depreciation Basis- Prior Depreciation x Rate= 2012 Current Year depreciation
  • 12,500 - 1,250 x .22220 = 2,500

Note: In certain situations Rev Proc 2011-26 requires the use of the DB/SL formula method.  To maintain a consistent presentation for all scenarios the Lacerte program uses the DB/SL formula method when applying the safe harbor method described in Rev Proc 2011-26.

The vehicle is fully depreciated and the client is taking mileage on it.  How do I adjust the amount per mile to remove the assumed depreciation portion.

A taxpayer is using the Standard Mileage Rate for a vehicle that has been fully depreciation. Lacerte shows a portion of the deduction as related to depreciation. How can I remove or adjust the amount due the car being fully depreciated?

The adjustment is not required per Publication 463.

• Depreciation Adjustment when you used the standard mileage rate -  If you used the standard mileage rate for the business use of your car, depreciation was included in that rate. ...You must reduce your basis in your car (but not below zero) by the amount of this depreciation.
• If your basis is reduced to zero (but not below zero) through the use of the standard mileage rate, and you continue to use your car for business , no adjustment (reduction) to the standard mileage rate is necessary.  Use the full standard mileage rate.

When selling or disposing of a vehicle asset, the amount on Form 4797, Sales of Business Property, Part I, line 2(e) is the current year depreciation only. The prior year depreciation is not included and must be calculated manually and entered for the vehicle.

This is based on IRS Pub 463: https://www.irs.gov/publications/p463#en_US_2020_publink100034059

• Depreciation adjustment when you used the standard mileage rate.
• If you used the standard mileage rate for the business use of your car, depreciation was included in that rate. The rate of depreciation that was allowed in the standard mileage rate is shown in the Rate of Depreciation Allowed in Standard Mileage Rate table, later. You must reduce your basis in your car (but not below zero) by the amount of this depreciation.