How Property Type A or T is calculated with 168 Allowance (1/1/2008-9/27/2017)

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Solution ID:

221924660118682

Last Modified Date:

Thu Apr 06 11:36:15 UTC 2023

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Category//Transactions//Calculations

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How Property Type A or T is calculated with 168 Allowance (1/1/2008-9/27/2017)

Description

Cause

Tax law (under IRC Section 280F) places a limit on the annual recovery amount for passenger vehicles that meet the definition of ‘luxury’ vehicles. These limits are applied to Property Type A and T. The lower of the calculated depreciation amount or the limit is allowed each year. Any remaining unrecovered basis is deducted in later years, also subject to the limit.

The cap amount varies by placed in service year, please see Help, Help Topic Automobile (Type A) or Light Trucks and Vans (Type T) for details of the maximum allowable depreciation.

Resolution

NOTE: Under Rev Proc 2011-26, if 100% first-year bonus was taken on the vehicle, then:

If there is any 'unrecovered basis' in the placed-in-service year, determine depreciation as though the asset took the 50% bonus
If there is NO 'unrecovered basis' in the placed-in-service year, determine depreciation by applying the appropriate depreciation rate (using the declining balance formula, table rates cannot be used)

You would pretend as if you took the 50% bonus for purposes of determining any unrecovered basis that had to be pushed out to Year 7 and beyond.

For example: An asset Placed in Service in 2018 with an Acquisition Value of $65,000:

Year	Depreciable Basis	Rate Allowed	Calculated Amount	Annual Limit	Amount Allowed
1	$65,000	100% Bonus	$65,000	$18,000	$18,000
2	$32,500	32%	$10,400	$16,000	$10,400
3	$32,500	19.20%	$6,240	$9,600	$6,240
4	$32,500	11.52%	$3,744	$5,760	$3,744
5	$32,500	11.52%	$3,744	$5,760	$3,744
6	$32,500	5.76%	$1,872	$5,760	$1,872
7				$5,760	$5,760
8				$5,760	$5,760
9				$5,760	$5,760
10				$5,760	$3,720

In year one, the acquisition value is multiplied by the 100% 168 Allowance rate. The annual limit is lower, so the $18,000 limit is the allowed deduction. If bonus has not been applied, the rate would be 20% of the value and the limit is reduced by $8,000 in the first year. (If not for Rev-Proc 2011-26, deduction of the entire unrecovered basis of $47,000 would have been deferred to year 7 and later.)

For years 2 thru 6, the depreciable basis is calculated as if 50% bonus had been taken, thus the basis is $32,500 ($65,000 cost – ($65,000 x 50%)). The basis is then multiplied by the 5-year table rate each year.

Years 7 through 10 are simply the lesser of the actual remaining basis, or the annual limit of $5,760.

Auto limits with the 168 allowance for the time period of this article:

Year	Life	Year 1	Year 2	Year 3	Year 4	Year 5
Placed in Service						and beyond
2008-2009	5 years	10,960	4,800	2,850	1,775	1,775
2009-2011	5 years	11,060	4,900	2,950	1,775	1,775
2012-2017	5 years	11,160	5,100	3,050	1,875	1,875

If you elect out of the 168 Allowance for the automobile, subtract the $8,000 depreciation increase from the Year 1 amount in the table.

[BCB:165:Chat Fixed Assets US:ECB]

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