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Can vehicle depreciation be rescinded?


Max W

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Client prepared his own 2018 and 2019 tax returns and took depreciation and expenses.

Now he finds out that taking the mileage expense would give him a much greater expense.

Can that return be amended?  Would he need to file a 3115?

Is there any remedy at all?

 

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IRS Topic # 510:

"Standard Mileage Rate - For the current standard mileage rate, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses or search standard mileage rates on IRS.gov. To use the standard mileage rate, you must own or lease the car and:

You must not operate five or more cars at the same time, as in a fleet operation,

You must not have claimed a depreciation deduction for the car using any method other than straight-line,

You must not have claimed a Section 179 deduction on the car,

You must not have claimed the special depreciation allowance on the car, and

You must not have claimed actual expenses after 1997 for a car you lease.

To use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses.

For a car you lease, you must use the standard mileage rate method for the entire lease period (including renewals) if you choose the standard mileage rate."

 

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Let's take this one step further.  Client used Turbotax and somehow he took both expenses AND mileage.  

Now he has been audited and the auditor says he elected to take expenses and depreciation.

I am looking for a loophole that probably doesn't exist. But one never knows.  

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Have you actually seen the return to know that both were actually deducted?  Just guessing, but is that what the client thinks, that both were deducted but weren't really?  I'd want to see for myself and not rely on what the client is saying.  I mean, every program allows the input for both methods and it will choose the better of the two, so if he did that and actual exp+deprec was higher then that is what may have happened.  Also, client may be thinking mileage was used if he entered it for the program to calculate the percentage of use for business purposes.

 

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12 hours ago, jklcpa said:

No remedy. Must use mileage in the first year for that method to ever be available again.

Are you saying that you can't amend to switch to mileage in the first year? Because I would think that you can. It's not like a formal election that needs to made by the due date.

And we need to remember that mileage does contain a depreciation amount, so you're actually depreciating the vehicle either way.

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1 hour ago, Abby Normal said:

Are you saying that you can't amend to switch to mileage in the first year? Because I would think that you can. It's not like a formal election that needs to made by the due date.

Maybe it is - from Pub 463:  https://www.irs.gov/publications/p463#en_US_2020_publink100033937

Quote

You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. You can’t revoke the choice.

 

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1 hour ago, Abby Normal said:

Are you saying that you can't amend to switch to mileage in the first year? Because I would think that you can. It's not like a formal election that needs to made by the due date.

And we need to remember that mileage does contain a depreciation amount, so you're actually depreciating the vehicle either way.

Yes, that is what I am saying.  Please see cbslee's and TexTaxToo's posts above also.

Rev. Proc. 2010-51 says this: "By using the business standard mileage rate, the taxpayer has elected to exclude the automobile (if owned) from MACRS pursuant to § 168(f)(1)" and that election must be made by the due date of the return including extensions.

The time for making this election is in §301.9100-7T(a)(1) and §301.9100-7T(a)(2)(i)(A) that says:

Quote

(2) Time for making elections -

(i) In general. Except as otherwise provided in this section, the elections specified in paragraph (a)(1) of this section shall be made by the later of -

(A) The due date (taking extensions into account) of the tax return for the first taxable year for which the election is to be effective

 

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14 hours ago, Max W said:

Would he need to file a 3115?

To answer this part of the original question -

No, 3115 is not appropriate and will not be a remedy.  This is not a change in accounting method. The taxpayer missed making the election, and there is no way to fix that now.

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