Section 168 bonus depreciation on luxury autos

Question

I know the final update reflecting 2015 tax law will not be released until version 2016.1 in early February 2016. However, Bill and Lovisa have advised on this forum that updating depreciation methods in the TAX and AMT books to MA200 or MA150 will reflect 50% bonus depreciation. For assets with code P, this is true. However, for assets with code A, it isn't working. 
 Luxury autos are limited to regular depreciation of $3,160 in year one. If bonus is elected, bonus is capped at $8,000, making the 168 Allowance $8,000 and regular depreciation $3,160 for a grand total expense of $11,160 for 2015. 
 I just updated a new luxury auto in our system and Sage is returning incorrect expense. The system is showing $3,160 as the 168 Allowance and zero as the Current YTD and Current Accum. The 168 Allowance should be $8,000 and the Current YTD should be $3,160. Both the TAX and AMT books are wrong. 
 If not fixed by 1/8/16, our company will be forced to manually calculate depreciation on all luxury autos, manually update all of our reports and then delete and re-enter each 2015 auto in 2016 so we can force the accumulated depreciation amounts to be correct. That's what we had to do last year. When we purchased the software 18 months ago, we were told Sage could handle luxury auto depreciation for tax purposes. It was wrong for 2014 and the 2015 update didn't fix it. 
 Almost every business needs the luxury auto depreciation limits to work. When will this be fixed?

Delray · Answer

Hello Again Laura, 
 
O’ I see what you meant now in the other thread, no, that is not how it works – 168 Allowance is not depreciation – it is a reduction of basis and that calculation must occur before the depreciation calculation. 
 
The major factor to keep in mind in this case is: 168 is not a function of time, it is given to you at the start of the asset’s life and is always taken in the first month of the asset’s life whereas a depreciation calculation accumulates over time. 
 
So, you have your brand new $40,000 car sitting in the parking lot (might as well go big, right?) which 168 allowance calculation says you can only calculate depreciation on $20,000 worth of that asset. Then the first year’s calculation is $40,000 * 50% = an amount greater than the allowed by the limit so the only amount which appears for the first year is a portion of the total bonus allowance therefore there is not a calculation on depreciation in the first year. 
 
The program is calculating in accordance with Tax advice received from the IRS.

Delray · Answer

I do understand what you are looking for from the program. I was attempting to explain why and how you are incorrect. What you are asking is not, and never has been, the way the program functions. We have had long consultation directly with the IRS, they have agreed to the calculation which you see in the program. We just do not make this stuff up. 
 
Unless you have specific code section which I can forward to R&D for review, my only answer could be that the program is calculating correctly.

Delray · Answer

None of which is relevant to your contention that the calculation in incorrect in SFA. 
 
The coding of 168 Allowance has been in the system since the 2002.1.1 release. None of this is new code. The 168 allowance has been in the system in one form or another, varying with the Tax code, since March of 2002. It would be incorrect to say that the 168 Allowance was not coded into the system correctly for 2014 assets if (and this is the fun part) entered into the 2015.1 product. 
 
If assets were setup in 2014.1 for 2014 Property Type A or T using MA200, before the calculation will be correct in the 2015.1, the Depreciation method must be changed to a non-168 method and changed back. This can be accomplished through the use of the 168 Allowance switch by first running the switch selecting the “Do not take the 168 allowance” option, then running the switch selecting the “Take the 168 50% Allowance”. 
 
As far as splitting out the Bonus and depreciation in the first year – I can only refer you back to my first reply. I will rephrase a bit: 
 
From page 7 of the 4562 instructions: 
 
“If you take the 50% special depreciation allowance, you must reduce the amount on which you figure your regular depreciation or amortization deduction by the amount deducted. Also, you will not have any AMT adjustment for the property if the depreciable basis of the property for the AMT is the same as for the regular tax.” 
 
By reducing the basis first and having the total depreciation allowed amount capped for Property Type A and T assets, then for any qualified vehicle with a value greater than $22,320, there will be no calculated depreciation in the first year.

Sage Fixed Assets

Section 168 bonus depreciation on luxury autos

COMMUNITY

COMPANY

PARTNERS

SUPPORT & TRAINING