Wednesday, March 16, 2011

No Depreciation!

Q.  I was working on my tax return today and noticed the program gave me no deduction for depreciation. I have the RV at a cost basis of $128,000 and am using SL depreciation over 5 years. My business use this year is 31%.  Can you tell what I am doing wrong?

A.  Depending on when you put your RV into business use, and the annual percentage of business use (which will usually change slightly each year), it's possible you already used up the allowable depreciation.

Case in point is the tax I worked on this morning. The taxpayers came to me in year 4 of using their coach. The firm which previously prepared the return didn't communicate with my client and used 100% business usage for his coach. In reality, the business usage was in the 30+% range. When I set up the depreciation properly, I had to put in the depreciation previously taken. And yes, because it was way over-depreciated in years 1 -3, there was no deduction for depreciation on the coach at all this year.

It is possible to pick up additional depreciation in a future year, providing the business use of the asset in question goes up. My suggestion is to check all prior year returns to ascertain if the business usage was properly calculated. Without more specifics it would be impossible to say. Computer programs aren't perfect!

 PS. Since my original comment, depreciation has been disallowed for RVs. See Jackson, T.C. Memo 2014-160, August 7, 2014.

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