Tax Depreciation for Autos With Bonus

I have 3 questions related to this topic.

  1. Our company's tax advisor says that for luxury automobiles that have 100% Bonus (e.g. $18,000 for a car purchased in '18), they should have no more tax depreciation on them till year 7.  The way Sage software does it, calculates depreciation each year after Bonus (starting with year 2).  Is Sage doing it correctly?
  2. If we want to choose to opt out of the new Safe Harbor for automobiles (included in Sage Fixed Assets 2019.1.2), how can we do that?  The software is automatically applying the Safe Harbor to our 2018 purchased vehicles going forward.
  3. The way Tax Depreciation was calculated prior to the Safe Harbor (when100% Bonus was in effect), it took 50% of the car's acquisition value and multiplied it by the IRS Publication 946 Rate Table rate.  Where does the 50% come from?  Why isn't it 100% since that is the Bonus Depreciation rate?
  • Hello Mindy Sue,

    1. That is for Section 179.

    2. Opt out? Not for the going forward calculation, but you can set your prior Accum amount so that your old calculation will still be there. See KB ID:17582 How to force prior accumulated depreciation? for details

    3. Due to the limits on the Property type A assets, there is no 100% 168 calculation, only the 50% which comes from various IRS code sections out there. For the whole story on that, See KB ID:41446 How Property Type A or T is calculated with 168 Allowance which does make reference to those sections.

    ~Delray

  • So since our company does not use Section 179, this new Safe Harbor causes less depreciation at the beginning of the car's life for most of our vehicles than what it was prior to Safe Harbor:  It appears that the Safe Harbor is only advantageous for cars costing more than $36,000 which we only have a few of.  That's why I was inquiring about opting out of it.  Just wondering if you agree with what I discovered about cars costing <$36,000.  (I did an analysis in Excel with all of our cars to figure this out and reconciled to what Sage Software was calculating.)  Can someone verify that this is true?

  • Yes, I agree. Since the Depreciable Basis is lower on those lower value vehicles than what it was prior to the safe harbor rules, the year to date calculations would also be lower. At least these asset will fully depreciation in the 5 year life, instead of the 8-10 years higher value vehicles will take to fully depreciate. 

    ~Delray

  • Thank you for your help/responses, Delray.  One more thing I want to mention:  For our 2018 FIT Tax Return which we are now getting ready to submit, our Tax Advisor who reviews our return told us we need to put $0 2018 depreciation on it for our 9/28/17-12/31/17 automobiles since we did not choose to apply the Safe Harbor to them.  Should the Sage Software program remove 2018 depreciation for these vehicles if I choose to re-run their Tax Depreciation for 2018?  (Currently we have 2018 depreciation on them.)  This whole Rev. Proc. 2019-13 issue has greatly confused me because the Sage Software and our Tax Advisor do not seem to agree on how it works.

  • Hello Mindy,

    All I really got is the KB ID:41446 How Property Type A or T is calculated with 168 Allowance where the resolution section was mostly written by our folks to actually read the IRS documentation. If your Tax guy can provide documentation backing up his opinion I will be happy to look it over and then forward it to those who decide.

    As for the tax form: I can say that Line 26 of the 4562 is where all depreciation, bonus or regular calculation, for all Property Type A and T assets will appear and, since all these assets are listed separately, they usually appear on the 4562 attachment which the program produces. If this is for any other Tax form - we would have no knowledge.

    ~Delray