Maximum vehicle depreciation

[mbigelow]

Pub 946 and tax book state the following for vehicle depreciation maximums:

"The annual deduction is the lesser of:
• The vehicle’s basis multiplied by the business use percentage multiplied by the applicable depreciation percentage, or
• The section 280F limit multiplied by the business percentage."

All the accompanying examples show only vehicles purchased under the HY convention, thus using 20% for the "applicable depreciation percentage". My question is this: if the mid-quarter convention applies (typically 4th as taxpayers scramble for deductions), does this percentage change (i.e. 1st- 35%, 2nd- 25%, 3rd- 15%, 4th- 5%)? My tax software seems to default to the $11,160 / $11,460 amounts for the first year, which may be incorrect, especially if 4th quarter percentages apply. Please advise, and thank you.

[TAXNJ]

IRS issues 2016 changes.

https://tax.thomsonreuters.com/media-resources/news-media-resources/checkpoint-news/daily-newsstand/irs-issues-2016-and-revised-2015-auto-light-truck-and-van-depreciation-dollar-limits/

[mbigelow]

To reiterate, my main confusion is with the "applicable depreciation percentage". Literally every single example I can find in all my publications and web searches involves a car purchased in the middle of the year, thus the HY convention and 20% multiplier. I need to know if a manual adjustment is to be made to my tax software for a midquarter convention, as it defaults to the $3,160/$11,160, $3,460, etc. 280F limits. Under HY, for example, a $60,000 passenger vehicle used 100% for business would qualify for a $12,000 (20% X $60K) deduction, which would be reduced to a 280F limit of $11,160. But under midquarter, a 4th quarter purchase of the same car could yield a mere $3,000 deduction (5% X $60K). This is a HUGE difference, which is why I'm trying to sort it out. Thoughts, oh wise tax preparers?

[kathyc2]

To reiterate, my main confusion is with the "applicable depreciation percentage". Literally every single example I can find in all my publications and web searches involves a car purchased in the middle of the year, thus the HY convention and 20% multiplier. I need to know if a manual adjustment is to be made to my tax software for a midquarter convention, as it defaults to the $3,160/$11,160, $3,460, etc. 280F limits. Under HY, for example, a $60,000 passenger vehicle used 100% for business would qualify for a $12,000 (20% X $60K) deduction, which would be reduced to a 280F limit of $11,160. But under midquarter, a 4th quarter purchase of the same car could yield a mere $3,000 deduction (5% X $60K). This is a HUGE difference, which is why I'm trying to sort it out. Thoughts, oh wise tax preparers?

If it qualifies for special depreciation you can claim 50% of the cost up to the max of 11,160 regardless of when placed in service during the year. If is does not qualify, you are limited to the 5% for 4th qrt mid quarter.

[TAXNJ]

Thanks

If it qualifies for special depreciation you can claim 50% of the cost up to the max of 11,160 regardless of when placed in service during the year. If is does not qualify, you are limited to the 5% for 4th qrt mid quarter.

Thanks kathyc2

[TaxGuyBill]

It is limited to 5%, UP TO the maximum annual exclusion.

In other words, the Mid-Quarter Convention (versus the Half-Year Convention) does not reduce the $11,160 / $11,460 limit ($3060/$3460 if it does not qualify for Bonus Depreciation).


EDIT: On second thought, I see where you are coming from now. It is sort of two limits, a $8000 limit for bonus and a $3060/$3460 limit for 'regular' depreciation. So logically, if the 5% is less than $3060/$3460, the 'excess' amount should reduce the $11,160/$11,460, rather than been added to the $8000 of Bonus Depreciation. However, as far as I can see, the Revenue Procedure and the tables do not address this, and the the tables do not indicate it reduce the limits.

Very interesting. I never though of that.

[mbigelow]

Thank you, all, for insightful feedback. Much appreciated!