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 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 How Property Type A or T is calculated with 168 Allowance (9/28/2017-12/31/2022) 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 How Property Type A or T is calculated with 168 Allowance (9/28/2017-12/31/2022) 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

Hi Mindy Sue,

Sage Fixed Assets does not have a built-in option for opting-out of the safe harbor in Rev Prod 2019-13. It automatically applies the safe harbor calculation because it is tax advantageous - the auto is expensed faster with the safe harbor over the rest of its tax life than without it. If taxpayers opt out of the new safe harbor, the end result is that the autos will not be written off as quickly in the following tax years. For example, a $35,000 auto PIS in 2017 fully depreciates in 2028, using the safe harbor. Without the safe harbor, it fully depreciates in 2035 - seven years later.

This is because without the new safe harbor, $0 deduction is allowed in years 2 to 6, and then up to $1,875 can be deducted in year 7+ until fully depreciated. Taxpayers cannot use the 2011 safe harbor, that was applicable in the past, for vehicles PIS in 2017 and later. (Although I do wonder if the IRS will provide leniency in 2018, since the safe harbor rules came out in 2019.)

There is a good article about the new safe harbor, with calculation examples, in Sage City - safe harbor rule changes. The examples use the 2018 luxury limits, but the same theory applies for autos that took 100% bonus in late 2017. 

If desired, you can get the effect of not using the safe harbor ($0 depreciation in 2018 to 2022) by editing the 2017 vehicles to take $0.01 of Section 179 in their PIS year, 2017. When you edit Section 179 to be $0.01, the system will prompt you to choose a date on which you want the critical change to be effective, Choose the "Placed-in-Service" date. 

Having $0.01 of Section 179 for the PIS year will result in $0 deduction for years 2 - 6, as Rev. Proc. 2019-13 does not allow the safe harbor calculation for years 2 to 6 if any Section 179 is claimed in the 1st year. For 2017, the application will calculate the remaining balance of the luxury limit, $11,159.99 as bonus depreciation. The total tax expense for each 100% bonus auto in 2017 will still be $11,160, the same as you claimed on your tax return, however, the SFA application will reflect that 1 cent of each auto was expensed as Section 179, with 1 cent less of bonus. Of course, you and your tax accountant will need to be comfortable with this approach. 

For years 2 to 6, the program will calculate $0 depreciation expense for the autos, as it should be without the safe harbor. Years 7+ will calculate the lower of the net value or the $1,875 depreciation limit. 

Ann,

Thank you for your solution to changing the 2017 autos' Tax Depreciation to $0 for 2018.  It seemed to have worked, and now these autos look correct in Sage.  I didn't like that they didn't match what we had to report on our Federal Income Tax Return.

Thanks again!

You are welcome. Thank you for letting me know, Mindy!