Say you have a $30,000 luxury car from 2016, and took 50% bonus. 100% Business Use.
Your bonus depreciation should have been $15,000--but the (combined) luxury limit for the year was $11,160.
Since most depreciation law (and 280f "luxury car" limits) were originally written before bonus deprecation came along, some of the laws conflict.
Hence the depreciable Basis for the car above--for years after Year One (2-6)--Can be argued to be either:
$18840 ($30,000 - $11,160 deprec taken Year one (all bonus) OR
$15,000 (since the IRS may say that the 50% depreciation is "deemed" as being taken; it was "allowable"--or rather, that it's "unrecovered" according to 280f and hence expensed AFTER the recovery period ends (=Year 7)
In fact,
Under the NEW safe harbor for luxury cars (and Rev Proc 2011-26 was similar), they say the law as written means bonus is DEEMED taken in full in Year 1--
And so in the case of 100% bonus--You'd get ZERO depreciation in years 2-6 if they didn't provide a safe harbor (because 100% bonus would be presumed taken in Year One, and so the disallowed part ("unrecovered" amount) is pushed to Year 7 (the first taxable year AFTER the recovery period ends).
If that's true--then wouldn't it ALSO be true for 50% depreciation? In other words, wouldn't the IRS have "deemed" $15,000 bonus taken in 2016? (in my example above)
But, 4562 instructs say to deduct bonus depreciation "taken" from basis (to get depreciable basis, Line 26(e) Form 4562)... And I think that's how my software handles it.
I'm wondering if everyone's software handles that way? Do ANY of them limit depreciable basis to $15,000 for Years 2-6?
If NOT, then why do we need a "safe harbor" on the 100% depreciation?
Perhaps the IRS knows that their position could be easily challenged, since laws conflict, and so everyone is banking on that?
Or am I completely missing something??
thanks so much!!
Your bonus depreciation should have been $15,000--but the (combined) luxury limit for the year was $11,160.
Since most depreciation law (and 280f "luxury car" limits) were originally written before bonus deprecation came along, some of the laws conflict.
Hence the depreciable Basis for the car above--for years after Year One (2-6)--Can be argued to be either:
$18840 ($30,000 - $11,160 deprec taken Year one (all bonus) OR
$15,000 (since the IRS may say that the 50% depreciation is "deemed" as being taken; it was "allowable"--or rather, that it's "unrecovered" according to 280f and hence expensed AFTER the recovery period ends (=Year 7)
In fact,
Under the NEW safe harbor for luxury cars (and Rev Proc 2011-26 was similar), they say the law as written means bonus is DEEMED taken in full in Year 1--
And so in the case of 100% bonus--You'd get ZERO depreciation in years 2-6 if they didn't provide a safe harbor (because 100% bonus would be presumed taken in Year One, and so the disallowed part ("unrecovered" amount) is pushed to Year 7 (the first taxable year AFTER the recovery period ends).
If that's true--then wouldn't it ALSO be true for 50% depreciation? In other words, wouldn't the IRS have "deemed" $15,000 bonus taken in 2016? (in my example above)
But, 4562 instructs say to deduct bonus depreciation "taken" from basis (to get depreciable basis, Line 26(e) Form 4562)... And I think that's how my software handles it.
I'm wondering if everyone's software handles that way? Do ANY of them limit depreciable basis to $15,000 for Years 2-6?
If NOT, then why do we need a "safe harbor" on the 100% depreciation?
Perhaps the IRS knows that their position could be easily challenged, since laws conflict, and so everyone is banking on that?
Or am I completely missing something??
thanks so much!!
Comment