How do I enter bonus depreciation in Drake Tax?
When you enter a qualified asset on the 4562 screen, the software automatically calculates bonus depreciation based on the date placed in service, method, life, and other IRS guidelines. Generally, bonus depreciation is calculated at 50% for eligible assets. Publication 946 discusses some exceptions or special depreciation allowances.
For certain assets acquired after September 27, 2017:
- 100% special or bonus depreciation is allowed if placed into service before January 1, 2023.
- 80% special or bonus depreciation is allowed if placed into service after December 31, 2022, but before January 1, 2024.
You can use the following options to change or limit the calculated amount of bonus taken:
- The Bonus depreciation field on screen 4562 to override the calculated bonus depreciation, or
- Entries on screen 10 Additional Depreciation Elections to
- elect out of bonus depreciation for all classes,
- elect to compute bonus depreciation by property class, or
- elect out of bonus depreciation for all classes.
In some cases, where qualified passenger auto depreciation is limited, you must make a selection on screen 10 to avoid EF message 5891 ENTRY REQUIRED ON ADDITIONAL DEPRECIATION ELECTIONS SCREEN.
Prior Bonus Depreciation
Under Prior bonus depreciation, a safe harbor election is available. Under Rev Proc 2012-26, the IRS provides that if the unadjusted depreciable basis of a passenger auto that is qualified property eligible for the 100% additional first-year depreciation deduction exceeds the first-year luxury auto limit, the excess amount is the unrecovered basis of the passenger automobile, and, therefore, is treated as a deductible expense in the first tax year succeeding the end of the normal 5-year (effectively 6-year) recovery period subject to the dollar limitation. Thus, applying the normal business-auto depreciation rules for years 2 through 6 yields a zero deduction.
To mitigate this, the IRS allows the election to be deemed 50% (and not 100%) bonus depreciation. Make the appropriate election for this asset by selecting one of the choices below:
- Safe Harbor Election
- 50% bonus depreciation elected in the prior year
- No Election. Do not take depreciation
Notes:
- If an asset placed into service in the current year is not calculating bonus depreciation as expected, review Publication 946 for details on whether or not the asset meets all IRS guidelines for being a qualified property eligible to take bonus depreciation.
- Elections to opt out of all bonus, limit bonus on certain properties based on life, or to elect only 50% bonus apply only to assets placed in service during the current tax year that qualify for bonus depreciation.
- AMT depreciation will be the same as regular tax depreciation for any class of property when the election is made to NOT take the special bonus depreciation allowance as stated in the PATH Act.