AIPB Mastering Depreciation Practice Test 2025 - Free Depreciation Practice Questions and Study Guide

When MACRS (Modified Accelerated Cost Recovery System) depreciation for an automobile exceeds the annual IRS limits, the key principle is that the excess depreciation cannot be immediately deducted. Instead, the portion that exceeds the limit is "carried forward" to subsequent years. This means that the taxpayer can utilize the excess depreciation in future tax years, allowing for a more extended period to recover the full tax benefit associated with the automobile's depreciation.

The IRS sets specific annual limits on depreciation deductions for vehicles to prevent excessive write-offs. Once the annual limit is reached, any amount above that does not get claimed in the current year but is preserved to offset taxable income in the future. This systematic approach ensures that while the immediate benefits are capped, the taxpayer’s overall investment recovery is not adversely impacted over the vehicle’s useful life.

In short, the treatment of excess MACRS depreciation is designed to roll over into future years, safeguarding the taxpayer's economic interest over time.