Yes–You Must Elect OUT of Bonus Depreciation
March 2nd, 2020 at 7:39 PM
As you likely know, the Tax Cuts and Jobs Act increased bonus depreciation to 100 percent.
Unlike most tax provisions that involve a tax election, this one requires you to elect out if you don’t want it.
For example, you (or your corporation) buy two $50,000 trucks, each with a gross vehicle weight rating of 6,500 pounds and a bed length of 6.5 feet. You use the trucks 100 percent for business. Because of the weight and bed size, the trucks are exempt from the luxury passenger vehicle depreciation limits.
You have five choices on how to deduct the vehicles on your 2019 tax return (the one you are filing or about to file—we are in tax season):
- Do nothing. This forces you to use bonus depreciation and deduct the entire $100,000 cost in year one. In addition, you deduct your operating expenses such as gas, oil, insurance, etc.
- Elect out, choose Section 179 expensing of any amount of your $100,000 cost of the trucks, and depreciate the balance. For example, you could elect to deduct $30,000 of Section 179 expensing on each truck and then depreciate the remainder using MACRS. In addition, you deduct your operating expenses such as gas, oil, insurance, etc. (Note. The trucks are not subject to the $25,000 SUV ceiling because of their weight and bed length.)
- Elect out, don’t use Section 179, and depreciate the trucks using the five-year MACRS depreciation schedule (which takes six years).
- Elect out, don’t use Section 179, and depreciate the trucks using the five-year straight-line depreciation schedule (which also takes six years).
- Use the 57.5 cent IRS standard mileage rate for each business mile driven. The 57.5 per mile rate includes operating expenses and 27 cents a mile for depreciation.
Okay, you get the big picture. Two trucks, each with a cost of $50,000 and both exempt from the luxury vehicle limits. Five choices as to the deduction.
Because of their gross vehicle weight, the vehicles mentioned above were exempt from the luxury vehicle depreciation limits that apply to
- cars with curb weight of 6,000 pounds or less, and
- SUVs, pickups, and crossover vehicles with a gross vehicle weight rating of 6,000 pounds or less.
Had the vehicles failed the weight test, their bonus depreciation for 2019 would have been limited to $18,100.
Mark S. Fineberg, CPA