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Laura Susko

Luxury auto calcs wrong in years subsequent to a section 168 bonus election

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Bonus Depreciation on luxury autos. I have posted on this site regarding this issue before yet after 3 years, I still cannot get a straight answer. For a luxury auto placed in service in years with 50% bonus depreciation, the allowable section 168 bonus depreciation amount should be $8,000 and the maximum regular depreciation is limited to $3,160.. Sage calculates the $11,160, but displays it all as section 168 depreciation, which is incorrect. However, as the total is correct, I finally just accepted it. I was assured that Sage then calculated depreciation correctly going forward. I discovered today this is not true.

I have an auto placed in service in 2015 on 8/24/15 for $31,028.93 with 50% bonus elected. $11,160 in total depreciation ($8,000 bonus and $3,160 regular) was claimed in 2015. Now for 2016, I am expecting the allowable regular depreciation to be $5,100 per the IRS's prescribed table for luxury autos. However, Sage is only calculating $4,964.63 which is $31,028.93 x 32% x 50%. Where on earth is Sage coming up with that calculation formula? If there were no luxury auto limitations, this auto would have depreciation of $7,369.26 ($31,028.93 - $8,000 bonus for a depreciable basis of $23,028.93 x 32% for 2nd year MACRS depreciation on a 5 year asset). Since $7,369.26 is greater than the maximum allowable depreciation of $5,100 for a luxury auto for its 2nd year of service, the allowable depreciation should be $5,100.

As Sage doesn't allow overrides to their calculations, am I just stuck with this incorrect depreciation now? I have over 60 autos on my books. Do I need to check every single one to see if Sage is allowing the luxury maximums? Why is Sage using the depreciable basis before bonus to calculate the depreciation? Why the 50% reduction after that?

  • 0

    Hi Laura,

    You can be confident that Sage Fixed Assets has the correct calculation. Sage does follow the IRS regulations. For any asset, multiply the depreciable basis x the specified rate for each year. For a five-year asset, the rates are:  20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%. For autos subject to the limit, then apply the limit if it is less than the calculated amount. The amounts not allowed for each year are considered 'unrecovered basis'. These are summed at the end of year 6 and can be recovered starting in year 7, but also subject to limit.

    Here is how the 2nd year is calculated. For all years, first the depreciable basis after the 50% bonus is calculated:

    Cost – 168k Allowance = Depreciable basis

    $31,028.93 –$15,514.47 = $15,514.46

    Then the year's rate is applied to the depreciable basis. Thus the depreciable basis x rate for year 2 is:

    Depreciable basis x rate = calculated depreciation

    $15,514.46 x 32% = $4,964.63

    Finally, the calculated depreciation is compared to the yearly limit and the lesser of the two is allowed for that year.

    Since the calculated amount is less than the limit of $5,100, the calculated amount of $4,964.63 is the depreciation for the year. If the auto had cost $32,000, then the $5,100 limit would apply.

    Due to the $1,875 auto limit for years 4 and later, this auto would be fully depreciated in its 10th year.

    Ann

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