Publication 463
taxmap/pubs/p463-010.htm#en_us_publink100033912This chapter discusses expenses you can deduct for business transportation
when you are not
traveling away from home
as defined in chapter 1. These expenses include the cost of transportation by
air, rail, bus, taxi, etc., and the cost of driving and maintaining your car.
Transportation expenses include the ordinary and necessary costs
of all of the following.
- Getting from one workplace to another in the course of your
business or profession when you are traveling within the city or general area
that is your tax home.
Tax home is defined in chapter 1.
- Visiting clients or customers.
- Going to a business meeting away from your regular workplace.
- Getting from your home to a temporary workplace when you have
one or more regular places of work. These temporary workplaces can be either
within the area of your tax home or outside that area.
Transportation expenses do not include expenses you have while
traveling away from home overnight. Those expenses are travel expenses discussed
in chapter 1. However, if you use your car while traveling away from home
overnight, use the rules in this chapter to figure your car expense deduction.
See
Car Expenses, later.
Figure B
illustrates the rules that apply for deducting transportation expenses when you
have a regular or main job away from your home. You may want to refer to it when
deciding whether you can deduct your transportation expenses.
taxmap/pubs/p463-010.htm#en_us_publink100033914If you have one or more regular work locations away from your
home and you commute to a temporary work location in the same trade or business,
you can deduct the expenses of the daily round-trip transportation between your
home and the temporary location, regardless of distance.
If your employment at a work location is realistically expected
to last (and does in fact last) for 1 year or less, the employment is temporary
unless there are facts and circumstances that would indicate otherwise.
If your employment at a work location is realistically expected
to last for more than 1 year or if there is no realistic expectation that the
employment will last for 1 year or less, the employment is not temporary,
regardless of whether it actually lasts for more than 1 year.
If employment at a work location initially is realistically expected
to last for 1 year or less, but at some later date the employment is
realistically expected to last more than 1 year, that employment will be treated
as temporary (unless there are facts and circumstances that would indicate
otherwise) until your expectation changes. It will not be treated as temporary
after the date you determine it will last more than 1 year.
If the temporary work location is beyond the general area of
your regular place of work and you stay overnight, you are traveling away from
home. You may have deductible travel expenses as discussed in
chapter 1.
If you have no regular place of work but ordinarily work in the
metropolitan area where you live, you can deduct daily transportation costs
between home and a temporary work site outside that metropolitan area.
Generally, a metropolitan area includes the area within the city
limits and the suburbs that are considered part of that metropolitan area.
You cannot deduct daily transportation costs between your home
and temporary work sites within your metropolitan area. These are nondeductible
commuting expenses.
taxmap/pubs/p463-010.htm#en_us_publink100033916If you work at two places in one day, whether or not for the
same employer, you can deduct the expense of getting from one workplace to the
other. However, if for some personal reason you do not go directly from one
location to the other, you cannot deduct more than the amount it would have cost
you to go directly from the first location to the second.
Transportation expenses you have in going between home and a
part-time job on a day off from your main job are commuting expenses. You cannot
deduct them.
taxmap/pubs/p463-010.htm#en_us_publink100033917A meeting of an Armed Forces reserve unit is a second place of
business if the meeting is held on a day on which you work at your regular job.
You can deduct the expense of getting from one workplace to the other as just
discussed under
Two places of work.
You usually cannot deduct the expense if the reserve meeting
is held on a day on which you do not work at your regular job. In this case,
your transportation generally is a nondeductible commuting expense. However, you
can deduct your transportation expenses if the location of the meeting is
temporary and you have one or more regular places of work.
If you ordinarily work in a particular metropolitan area but
not at any specific location and the reserve meeting is held at a temporary
location outside that metropolitan area, you can deduct your transportation
expenses.
If you travel away from home overnight to attend a guard or reserve
meeting, you can deduct your travel expenses. These expenses are discussed in
chapter 1.
If you travel more than 100 miles away from home in connection
with your performance of services as a member of the reserves, you may be able
to deduct some of your reserve-related travel costs as an adjustment to gross
income rather than as an itemized deduction. For more information, see
Armed Forces Reservists Traveling More Than 100 Miles From
Home under
Special Rules, in chapter 6.
You cannot deduct the costs of taking a bus, trolley, subway,
or taxi, or of driving a car between your home and your main or regular place of
work. These costs are personal commuting expenses. You cannot deduct commuting
expenses no matter how far your home is from your regular place of work. You
cannot deduct commuting expenses even if you work during the commuting trip.
taxmap/pubs/p463-010.htm#en_us_publink100033919You sometimes use your cell phone to make business calls while
commuting to and from work. Sometimes business associates ride with you to and
from work, and you have a business discussion in the car. These activities do
not change the trip from personal to business. You cannot deduct your commuting
expenses.
taxmap/pubs/p463-010.htm#en_us_publink100033920
Fees you pay to park your car at your place of business are nondeductible
commuting expenses. You can, however, deduct business-related parking fees when
visiting a customer or client.
taxmap/pubs/p463-010.htm#en_us_publink100033921Putting display material that advertises your business on your
car does not change the use of your car from personal use to business use. If
you use this car for commuting or other personal uses, you still cannot deduct
your expenses for those uses.
taxmap/pubs/p463-010.htm#en_us_publink100033922You cannot deduct the cost of using your car in a nonprofit car
pool. Do not include payments you receive from the passengers in your income.
These payments are considered reimbursements of your expenses. However, if you
operate a car pool for a profit, you must include payments from passengers in
your income. You can then deduct your car expenses (using the rules in this
publication).
taxmap/pubs/p463-010.htm#en_us_publink100033923Hauling tools or instruments in your car while commuting to and
from work does not make your car expenses deductible. However, you can deduct
any additional costs you have for hauling tools or instruments (such as for
renting a trailer you tow with your car).
taxmap/pubs/p463-010.htm#en_us_publink100033924If you get your work assignments at a union hall and then go
to your place of work, the costs of getting from the union hall to your place of
work are nondeductible commuting expenses. Although you need the union to get
your work assignments, you are employed where you work, not where the union hall
is located.
taxmap/pubs/p463-010.htm#en_us_publink100033925If you have an office in your home that qualifies as a principal
place of business, you can deduct your daily transportation costs between your
home and another work location in the same trade or business. (See Publication
587, Business Use of Your Home, for information on determining if your home
office qualifies as a principal place of business.)
taxmap/pubs/p463-010.htm#en_us_publink100033926The following examples show when you can deduct transportation
expenses based on the location of your work and your home.
taxmap/pubs/p463-010.htm#en_us_publink100033927You regularly work in an office in the city where you live. Your
employer sends you to a 1-week training session at a different office in the
same city. You travel directly from your home to the training location and
return each day. You can deduct the cost of your daily round-trip transportation
between your home and the training location.
taxmap/pubs/p463-010.htm#en_us_publink100033928Your principal place of business is in your home. You can deduct
the cost of round-trip transportation between your qualifying home office and
your client's or customer's place of business.
taxmap/pubs/p463-010.htm#en_us_publink100033929You have no regular office, and you do not have an office in
your home. In this case, the location of your first business contact is
considered your office. Transportation expenses between your home and this first
contact are nondeductible commuting expenses. Transportation expenses between
your last business contact and your home are also nondeductible commuting
expenses. Although you cannot deduct the costs of these trips, you can deduct
the costs of going from one client or customer to another.
taxmap/pubs/p463-010.htm#en_us_publink100033930If you use your car for business purposes, you ordinarily can
deduct car expenses. You generally can use one of the two following methods to
figure your deductible expenses.
- Standard mileage rate.
- Actual car expenses.
If you use actual expenses to figure your deduction for a car
you lease, there are rules that affect the amount of your lease payments you can
deduct. See
Leasing a Car, later.
In this publication, "car" includes a van, pickup, or panel truck.
For the definition of "car" for depreciation purposes, see
Car defined under
Actual Car Expenses, later.
 | You may be entitled to a tax credit for an alternative motor
vehicle you place in service during the year. The vehicle must meet certain
requirements, and you do not have to use it in your business to qualify for the
credit. However, you must reduce your basis for depreciation of the alternative
motor vehicle by the amount of the credit you claim. See
Depreciation Deduction, later, under Actual Car Expenses.
For more information on alternative motor vehicles, see Form 8910, Alternative
Motor Vehicle Credit. |
taxmap/pubs/p463-010.htm#en_us_publink100033933If you are a rural mail carrier, you may be able to treat the
qualified reimbursement you received as your allowable expense. Because the
qualified reimbursement is treated as paid under an accountable plan, your
employer should not include the reimbursement in your income.
If your vehicle expenses are more than the amount of your reimbursement,
you can deduct the unreimbursed expenses as an itemized deduction on Schedule A
(Form 1040). You must complete Form 2106 and attach it to your Form 1040, U.S.
Individual Income Tax Return.
A "qualified reimbursement" is the reimbursement you receive
that meets both of the following conditions.
- It is given as an equipment maintenance allowance (EMA) to
employees of the U.S. Postal Service.
- It is at the rate contained in the 1991 collective bargaining
agreement. Any later agreement cannot increase the qualified reimbursement
amount by more than the rate of inflation.
See your employer for information on your reimbursement.
 | If you are a rural mail carrier and received a qualified
reimbursement, you cannot use the standard mileage rate.
|
taxmap/pubs/p463-010.htm#en_us_publink100033935You may be able to use the standard mileage rate to figure the
deductible costs of operating your car for business purposes. For 2010, the
standard mileage rate for the cost of operating your car for business use is 50
cents per mile.
| If you use the standard mileage rate for a year, you cannot
deduct your actual car expenses for that year. You cannot deduct depreciation,
lease payments, maintenance and repairs, gasoline (including gasoline taxes),
oil, insurance, or vehicle registration fees. See
Choosing the standard mileage rate and
Standard mileage rate not allowed, later.
|
You generally can use the standard mileage rate whether or not
you are reimbursed and whether or not any reimbursement is more or less than the
amount figured using the standard mileage rate. See chapter 6 for more
information on
reimbursements.
If you want 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 either the standard mileage
rate or actual expenses.
If you want to use the standard mileage rate for a car you lease,
you must use it for the entire lease period. For leases that began on or before
December 31, 1997, the standard mileage rate must be used for the entire portion
of the lease period (including renewals) that is after 1997.
You must make the choice to use the standard mileage rate by
the due date (including extensions) of your return. You cannot revoke the
choice. However, in later years, you can switch from the standard mileage rate
to the actual expenses method. If you change to the actual expenses method in a
later year, but before your car is fully depreciated, you have to estimate the
remaining useful life of the car and use straight line depreciation.
taxmap/pubs/p463-010.htm#en_us_publink1000250305Larry is an employee who occasionally uses his own car for business
purposes. He purchased the car in 2008, but he did not claim any unreimbursed
employee expenses on his 2008 tax return. Because Larry did not use the standard
mileage rate the first year the car was available for business use, he cannot
use the standard mileage rate in 2010 to claim unreimbursed employee business
expenses.
For more information about depreciation included in the standard
mileage rate, see
Exception under
Methods of depreciation under
Depreciation Deduction, later.
You cannot use the standard mileage rate if you:
- Use the car for hire (such as a taxi),
- Use five or more cars at the same time (as in fleet operations),
- Claimed a depreciation deduction for the car using any method
other than straight line, for example,
MACRS (as discussed later under
Depreciation Deduction),
- Claimed a section
179 deduction (discussed later) on the car,
- Claimed the
special depreciation allowance on the car,
- Claimed actual car expenses after 1997 for a car you leased,
or
- Are a rural mail carrier who received a qualified reimbursement.
(See
Rural mail carriers, earlier.)
If you own or lease five or more cars that are used for business
at the same time, you cannot use the standard mileage rate for the business use
of any car. However, you may be able to deduct your actual expenses for
operating each of the cars in your business. See
Actual Car Expenses, later, for information on how to figure your deduction.
You are not using five or more cars for business at the same
time if you alternate using (use at different times) the cars for business.
The following examples illustrate the rules for when you can
and cannot use the standard mileage rate for five or more cars.
taxmap/pubs/p463-010.htm#en_us_publink100033940Marcia, a salesperson, owns three cars and two vans that she
alternates using for calling on her customers. She can use the standard mileage
rate for the business mileage of the three cars and the two vans because she
does not use them at the same time.
taxmap/pubs/p463-010.htm#en_us_publink100033941Tony and his employees use his four pickup trucks in his landscaping
business. During the year, he traded in two of his old trucks for two newer
ones. Tony can use the standard mileage rate for the business mileage of all six
of the trucks he owned during the year.
taxmap/pubs/p463-010.htm#en_us_publink100033942Chris owns a repair shop and an insurance business. He and his
employees use his two pickup trucks and van for the repair shop. Chris
alternates using his two cars for the insurance business. No one else uses the
cars for business purposes. Chris can use the standard mileage rate for the
business use of the pickup trucks, van, and the cars because he never has more
than four vehicles used for business at the same time.
taxmap/pubs/p463-010.htm#en_us_publink100033943Maureen owns a car and four vans that are used in her housecleaning
business. Her employees use the vans, and she uses the car to travel to various
customers. Maureen cannot use the standard mileage rate for the car or the vans.
This is because all five vehicles are used in Maureen's business at the same
time. She must use actual expenses for all vehicles.
taxmap/pubs/p463-010.htm#en_us_publink100033944If you are an employee, you cannot deduct any interest paid on
a car loan. This applies even if you use the car 100% for business as an
employee.
However, if you are self-employed and use your car in your business,
you can deduct that part of the interest expense that represents your business
use of the car. For example, if you use your car 60% for business, you can
deduct 60% of the interest on Schedule C (Form 1040). You cannot deduct the part
of the interest expense that represents your personal use of the car.
| If you use a home equity loan to purchase your car, you may
be able to deduct the interest. See Publication 936, Home Mortgage Interest
Deduction, for more information.
|
taxmap/pubs/p463-010.htm#en_us_publink100033946If you itemize your deductions on Schedule A (Form 1040), you
can deduct on line 8 state and local personal property taxes on motor vehicles.
You can take this deduction even if you use the standard mileage rate or if you
do not use the car for business.
If you are self-employed and use your car in your business, you
can deduct the business part of state and local personal property taxes on motor
vehicles on Schedule C, Schedule C-EZ, or Schedule F (Form 1040). If you itemize
your deductions, you can include the remainder of your state and local personal
property taxes on the car on Schedule A (Form 1040).
taxmap/pubs/p463-010.htm#en_us_publink100033947In addition to using the standard mileage rate, you can deduct
any business-related parking fees and tolls. (Parking fees you pay to park your
car at your place of work are nondeductible commuting expenses.)
taxmap/pubs/p463-010.htm#en_us_publink100033948If you sell, trade in, or otherwise dispose of your car, you
may have a gain or loss on the transaction or an adjustment to the basis of your
new car. See
Disposition of a Car, later.
If you do not use the standard mileage rate, you may be able
to deduct your actual car expenses.
| If you qualify to use both methods, you may want to figure
your deduction both ways to see which gives you a larger deduction. |
Actual car expenses include:
Depreciation
Licenses
| Lease
payments
| Registration
fees
|
| Gas | Insurance | Repairs |
| Oil | Garage rent | Tires |
| Tolls | Parking fees | |
If you have fully depreciated a car that you still use in your
business, you can continue to claim your other actual car expenses. Continue to
keep records, as explained later in
chapter 5.
If you use your car for both business and personal purposes,
you must divide your expenses between business and personal use. You can divide
your expense based on the miles driven for each purpose.
taxmap/pubs/p463-010.htm#en_us_publink100033952You are a sales representative for a clothing firm and drive
your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles
for personal use. You can claim only 60% (12,000 ÷ 20,000) of the cost of
operating your car as a business expense.
taxmap/pubs/p463-010.htm#en_us_publink100033953If you use a vehicle provided by your employer for business purposes,
you can deduct your actual unreimbursed car expenses. You cannot use the
standard mileage rate. See
Vehicle Provided by Your Employer in chapter 6.
If you are an employee, you cannot deduct any interest paid on
a car loan. This interest is treated as personal interest and is not deductible.
If you are self-employed and use your car in that business, see
Interest, earlier, under
Standard Mileage Rate.
If you are an employee, you can deduct personal property taxes
paid on your car if you itemize deductions. Enter the amount paid on line 8 of
Schedule A (Form 1040).
taxmap/pubs/p463-010.htm#en_us_publink100033956Generally, sales taxes on your car are part of your car's basis
and are recovered through depreciation, discussed later.
taxmap/pubs/p463-010.htm#en_us_publink100033957You cannot deduct fines you pay or collateral you forfeit for
traffic violations.
taxmap/pubs/p463-010.htm#en_us_publink100033958If your car is damaged, destroyed, or stolen, you may be able
to deduct part of the loss not covered by insurance. See Publication 547,
Casualties, Disasters, and Thefts, for information on deducting a loss on your
car.
taxmap/pubs/p463-010.htm#en_us_publink100033959Generally, the cost of a car, plus sales tax and improvements,
is a capital expense. Because the benefits last longer than 1 year, you
generally cannot deduct a capital expense. However, you can recover this cost
through the section 179 deduction (the deduction allowed by section 179 of the
Internal Revenue Code), special depreciation allowance, and depreciation
deductions. Depreciation allows you to recover the cost over more than 1 year by
deducting part of it each year. The
section 179 deduction,
special depreciation allowance, and
depreciation deductions are discussed later.
Generally, there are limits on these deductions. Special rules
apply if you use your car 50% or less in your work or business.
You can claim a section 179 deduction and use a depreciation
method other than straight line only if you do not use the standard mileage rate
to figure your business-related car expenses in the year you first place a car
in service.
If you claim either a section 179 deduction or use a depreciation
method other than straight line in the year you first place a car in service,
you cannot use the standard mileage rate on that car in any future year.
taxmap/pubs/p463-010.htm#en_us_publink100033960For depreciation purposes, a car is any four-wheeled vehicle
(including a truck or van) made primarily for use on public streets, roads, and
highways. Its unloaded gross vehicle weight must not be more than 6,000 pounds.
A car includes any part, component, or other item physically attached to it or
usually included in the purchase price.
A car does not include:
- An ambulance, hearse, or combination ambulance-hearse used
directly in a business,
- A vehicle used directly in the business of transporting persons
or property for pay or hire, or
- A truck or van that is a qualified nonpersonal use vehicle.
These are vehicles that by their nature are not likely to be
used more than a minimal amount for personal purposes. They include trucks and
vans that have been specially modified so that they are not likely to be used
more than a minimal amount for personal purposes, such as by installation of
permanent shelving and painting the vehicle to display advertising or the
company's name. Delivery trucks with seating only for the driver, or only for
the driver plus a folding jump seat, are qualified nonpersonal use vehicles.
taxmap/pubs/p463-010.htm#en_us_publink100033962taxmap/pubs/p463-010.htm#en_us_publink100033963The section 179 deduction allows you to treat a portion or all
of the business cost of a car as a current expense instead of taking
depreciation deductions over a number of years.
| There is a limit on the total section 179 deduction, special
depreciation allowance, and depreciation deduction for cars, trucks, and vans
that may reduce or eliminate any benefit from claiming the section 179
deduction. See
Depreciation Limits, later. |
You can claim the section 179 deduction only in the year you
place the car in service. For this purpose, a car is placed in service when it
is ready and available for a specific use, whether in a trade or business, a
tax-exempt activity, a personal activity, or for the production of income. Even
if you are not using the property, it is in service when it is ready and
available for its specific use.
A car first used for personal purposes cannot qualify for the
deduction in a later year when its use changes to business.
taxmap/pubs/p463-010.htm#en_us_publink100033965In 2009 you bought a new car and used it for personal purposes.
In 2010, you began to use it for business. Changing its use to business use does
not qualify the cost of your car for a section 179 deduction in 2010. However,
you can claim a depreciation deduction for the business use of the car starting
in 2010. See
Depreciation Deduction, later.
You must use the property more than 50% for business to claim
any section 179 deduction. If you used the property more than 50% for business,
multiply the cost of the property by the percentage of business use. The result
is the cost of the property that can qualify for the section 179 deduction.
taxmap/pubs/p463-010.htm#en_us_publink100033967taxmap/pubs/p463-010.htm#en_us_publink100033968There are limits on:
- The amount of the section 179 deduction,
- The section 179 deduction for sport utility and certain other
vehicles, and
- The total amount of the section 179 deduction, special depreciation
allowance, and depreciation deduction (discussed
later) you can claim for a qualified property.
For 2010, the total amount you can choose to deduct under section
179 generally cannot be more than $500,000.
If the cost of your qualifying section 179 property placed in
service in 2010 is over $2,000,000, you must reduce the $500,000 dollar limit
(but not below zero) by the amount of cost over $2,000,000. If the cost of your
section 179 property placed in service during 2010 is $2,500,000 or more, you
cannot take a section 179 deduction.
The total amount you can deduct under section 179 each year after
you apply the limits listed above cannot be more than the taxable income from
the active conduct of any trade or business during the year.
If you are married and file a joint return, you and your spouse
are treated as one taxpayer in determining any reduction to the dollar limit,
regardless of which of you purchased the property or placed it in service.
If you and your spouse file separate returns, you are treated
as one taxpayer for the dollar limit. You must allocate the dollar limit (after
any reduction) between you.
For more information on the above section 179 deduction limits,
see Publication 946.
taxmap/pubs/p463-010.htm#en_us_publink100033970For sport utility and certain other vehicles placed in service
in 2010, the portion of the vehicle's cost taken into account in figuring your
section 179 deduction is limited to $25,000. This rule applies to any
four-wheeled vehicle primarily designed or used to carry passengers over public
streets, roads, or highways, that is not subject to any of the passenger
automobile limits explained under
Depreciation Limits, later, and that is rated at no more than 14,000 pounds gross
vehicle weight. However, the $25,000 limit does not apply to any vehicle:
- Designed to have a seating capacity of more than nine persons
behind the driver's seat,
- Equipped with a cargo area of at least 6 feet in interior
length that is an open area or is designed for use as an open area but is
enclosed by a cap and is not readily accessible directly from the passenger
compartment, or
- That has an integral enclosure, fully enclosing the driver
compartment and load carrying device, does not have seating rearward of the
driver's seat, and has no body section protruding more than 30 inches ahead of
the leading edge of the windshield.
Generally, the total amount of section 179, special depreciation
allowance, and depreciation deduction you can claim for a qualified car you
placed in service in 2010 is $11,060. The limit is reduced if your business use
of the car is less than 100%. See
Depreciation Limits, later, for more information.
In the
earlier example under
More than 50% business use requirement,
Peter had a car with a qualifying cost (for purposes of the section 179
deduction) of $11,700. However, Peter's total section 179, special depreciation
allowance, and depreciation deduction is limited to $6,636 ($11,060 limit x 60%
business use).
For purposes of the section 179 deduction, the cost of the car
does not include any amount figured by reference to any other property held by
you at any time. For example, if you buy (for cash and a trade-in) a new car to
use in your business, your cost for purposes of the section 179 deduction does
not include your adjusted basis in the car you trade in for the new car. Your
cost includes only the cash you paid.
taxmap/pubs/p463-010.htm#en_us_publink100033974The amount of the section 179 deduction reduces your basis in
your car. If you choose the section 179 deduction, you must subtract the amount
of the deduction from the cost of your car. The resulting amount is the basis in
your car you use to figure your depreciation deduction.
taxmap/pubs/p463-010.htm#en_us_publink100033975If you want to take the section 179 deduction, you must make
the choice in the tax year you both purchase the car and place it in service for
business or work.
taxmap/pubs/p463-010.htm#en_us_publink100033976
Employees use Form 2106 to make this choice and report the section 179
deduction. All others use Form 4562.
File the appropriate form with either of the following.
- Your original tax return filed for the year the property was
placed in service (whether or not you file it timely).
- An amended return filed within the time prescribed by law.
An election made on an amended return must specify the item of section 179
property to which the election applies and the part of the cost of each such
item to be taken into account. The amended return must also include any
resulting adjustments to taxable income.
| You must keep records that show the specific identification
of each piece of qualifying section 179 property. These records must show how
you acquired the property, the person you acquired it from, and when you placed
it in service. |
taxmap/pubs/p463-010.htm#en_us_publink100033978An election (or any specification made in the election) to take
a section 179 deduction for 2010 can only be revoked with the Commissioner's
approval.
taxmap/pubs/p463-010.htm#en_us_publink100033979To be eligible to claim the section 179 deduction, you must use
your car more than 50% for business or work in the year you acquired it. If your
business use of the car is 50% or less in a later tax year during the recovery
period, you have to recapture (include in income) in that later year any excess
depreciation. Any section 179 deduction claimed on the car is included in
calculating the excess depreciation. For information on this calculation, see
Excess depreciation, later in this chapter under
Car Used 50% or Less for Business.
If you dispose of a car on which you had claimed the section
179 deduction, the amount of that deduction is treated as a depreciation
deduction for recapture purposes. You treat any gain on the disposition of the
property as ordinary income up to the amount of the section 179 deduction and
any allowable depreciation (unless you establish the amount actually allowed).
For information on the disposition of a car, see
Disposition of a Car, later.
You may be able to claim the special depreciation allowance for
your car, truck, or van, if it is qualified property and was placed in service
in 2010. For vehicles purchased before September 9, 2010, the allowance is an
additional depreciation deduction of 50% of the car's depreciable basis (after
any section 179 deduction, but before figuring your regular depreciation
deduction under MACRS). If you purchased the vehicle after September 8, 2010,
and placed it in service before January 1, 2012, the additional depreciation
allowance increases to 100% of depreciable basis. The special depreciation
allowance applies only for the first year the car is placed in service. To
qualify for the allowance more than 50% of the use of the car must be in a
qualified business use (as defined under
Depreciation Deduction, later.
Note.Additional information with respect to Publication 463, including
the application of the 50% bonus and 100% bonus depreciation rules, will be
available on
www.irs.gov/pub463 later in the filing season.
Your combined section 179 deduction, special depreciation allowance,
and regular MACRS depreciation deduction is limited to the maximum allowable
depreciation deduction for cars of $11,060 ($3,060 if you elect not to claim the
special depreciation allowance). For trucks and vans the first-year limit has
increased to $11,160 ($3,160 if you elect not to claim the special depreciation
allowance). See
Depreciation Limits, later in this chapter.
To be a qualified car (including trucks and vans), the car must
meet all of the following tests.
- You purchased the car new on or after January 1, 2008, but
only if no binding written contract to acquire the car existed before January 1,
2008,
- You placed the car in service in your trade or business before
January 1, 2013,
- You used the car more than 50% in a qualified business use.
Dan purchased a new car for $23,500 in June 2010, and used it
100% in his business. The car is qualified property. Dan's unadjusted basis is
$23,500. Dan chooses not to claim any section 179 deduction but he does choose
to claim the special depreciation allowance. Dan figures his special allowance
to be $11,750 ($23,500 x 50%).
Dan chooses the MACRS 200% declining balance method and figures
his regular depreciation deduction under MACRS (discussed later) to be $2,350
(($23,500 − $11,750) x 20%). The total section 179, special depreciation
allowance, and MACRS depreciation deduction is $14,100 ($11,750 + $2,350).
However, Dan's depreciation deduction is limited to $11,060. Therefore, Dan
reports $11,060 as depreciation for his car in 2010. See
Depreciation Limits, later.
You can elect not to claim the special depreciation allowance
for your car, truck, or van, that is qualified property. If you make this
election, it applies to all 5-year property placed in service during the year.
To make the election, attach a statement to your timely filed
return (including extensions) indicating the class of property (5-year for cars)
for which you are making the election and that you are electing not to claim the
special depreciation allowance for qualified property acquired after December
31, 2008.
| Unless you elect not to claim the special depreciation allowance,
you must reduce the car's adjusted basis by the amount of the allowance, even if
the allowance was not claimed. |
taxmap/pubs/p463-010.htm#en_us_publink100033986If you use actual car expenses to figure your deduction for a
car you own and use in your business, you can claim a depreciation deduction:
that is, you can deduct a certain amount each year as a recovery of your cost or
other basis in your car.
You generally need to know the following things about the car
you intend to depreciate.
- Your basis in the car.
- The date you place the car in service.
- The method of depreciation and recovery period you will use.
Your basis in a car for figuring depreciation is generally its
cost. This includes any amount you borrow or pay in cash, other property, or
services.
Generally, you figure depreciation on your car, truck, or van
using your unadjusted basis (see
Unadjusted basis, later). However, in some situations you will use your adjusted
basis (your basis reduced by depreciation allowed or allowable in earlier
years). For one of these situations see
Exception under
Methods of depreciation, later.
If you change the use of a car from personal to business, your
basis for depreciation is the lesser of the fair market value or your adjusted
basis in the car on the date of conversion. Additional rules concerning basis
are discussed later in this chapter under
Unadjusted basis.
You generally place a car in service when it is available for
use in your work or business, in an income-producing activity, or in a personal
activity. Depreciation begins when the car is placed in service for use in your
work or business or for the production of income.
For purposes of computing depreciation, if you first start using
the car only for personal use and later convert it to business use, you place
the car in service on the date of conversion.
taxmap/pubs/p463-010.htm#en_us_publink100033989If you place a car in service and dispose of it in the same tax
year, you cannot claim any depreciation deduction for that car.
taxmap/pubs/p463-010.htm#en_us_publink100033990Generally, you figure depreciation on cars using the Modified
Accelerated Cost Recovery System (MACRS).
MACRS is discussed later in this chapter.
If you used the standard mileage rate in the first year of business
use and change to the actual expenses method in a later year, you cannot
depreciate your car under the MACRS rules. You must use straight line
depreciation over the estimated remaining useful life of the car.
To figure depreciation under the straight line method, you must
reduce your basis in the car (but not below zero) by a set rate per mile for all
miles for which you used the standard mileage rate. The rate per mile varies
depending on the year(s) you used the standard mileage rate. For the rate(s) to
use, see
Depreciation adjustment when you used the standard mileage
rate under
Disposition of a Car, later.
This reduction of basis is in addition to those basis adjustments
described later under
Unadjusted basis. You must use your adjusted basis in your car to figure your
depreciation deduction. For additional information on the straight line method
of depreciation, see Publication 946.
Generally, you must use your car more than 50% for qualified
business use (defined next) during the year to use MACRS. You must meet this
more-than-50%-use test each year of the recovery period (6 years under MACRS)
for your car.
taxmap/pubs/p463-010.htm#en_us_publink100033993A qualified business use is any use in your trade or business.
It does not include use for the production of income (investment use). However,
you do combine your business and investment use to compute your depreciation
deduction for the tax year.
taxmap/pubs/p463-010.htm#en_us_publink100033994Do not treat any use of your car by another person as use in
your trade or business unless that use meets one of the following conditions.
- It is directly connected with your business.
- It is properly reported by you as income to the other person
(and, if you have to, you withhold tax on the income).
- It results in a payment of fair market rent. This includes
any payment to you for the use of your car.
If you used your car more than 50% in qualified business use
in the year you placed it in service, but 50% or less in a later year (including
the year of disposition), you have to change to the straight line method of
depreciation. See
Qualified business use 50% or less in a later year under
Car Used 50% or Less for Business,
later.
| Property does not cease to be used more than 50% in qualified
business use by reason of a transfer at death.
|
taxmap/pubs/p463-010.htm#en_us_publink100033997If you use your car for more than one purpose during the tax
year, you must allocate the use to the various purposes. You do this on the
basis of mileage. Figure the percentage of qualified business use by dividing
the number of miles you drive your car for business purposes during the year by
the total number of miles you drive the car during the year for any purpose.
taxmap/pubs/p463-010.htm#en_us_publink100033998If you change the use of a car from 100% personal use to business
use during the tax year, you may not have mileage records for the time before
the change to business use. In this case, you figure the percentage of business
use for the year as follows.
- Determine the percentage of business use for the period following
the change. Do this by dividing business miles by total miles driven during that
period.
- Multiply the percentage in (1) by a fraction. The numerator
(top number) is the number of months the car is used for business and the
denominator (bottom number) is 12.
You use a car only for personal purposes during the first 6 months
of the year. During the last 6 months of the year, you drive the car a total of
15,000 miles of which 12,000 miles are for business. This gives you a business
use percentage of 80% (12,000 ÷ 15,000) for that period. Your business use
for the year is 40% (80% ×
6/12).
taxmap/pubs/p463-010.htm#en_us_publink100034000The amount you can claim for section 179, special depreciation
allowance, and depreciation deductions may be limited. The maximum amount you
can claim depends on the year in which you placed your car in service. You have
to reduce the maximum amount if you did not use the car exclusively for
business. See
Depreciation Limits, later.
You use your unadjusted basis (often referred to as your basis
or your basis for depreciation) to figure your depreciation using the MACRS
depreciation chart, explained later under
Modified Accelerated Cost Recovery System (MACRS). Your unadjusted basis for figuring depreciation is your original
basis increased or decreased by certain amounts.
To figure your unadjusted basis, begin with your car's original
basis, which generally is its cost. Cost includes sales taxes (see
Sales taxes
earlier), destination charges, and dealer preparation. Increase your basis by
any substantial improvements you make to your car, such as adding air
conditioning or a new engine. Decrease your basis by any section 179 deduction,
special depreciation allowance, gas guzzler tax, clean fuel vehicle deduction,
and alternative motor vehicle credit.
See Form 8910 for information on the alternative motor vehicle
credit.
| If your business use later falls to 50% or less, you may
have to recapture (include in your income) any excess depreciation. See
Car Used 50% or Less for Business, later, for more information. |
If you acquired the car by gift or inheritance, see Publication
551, Basis of Assets, for information on your basis in the car.
taxmap/pubs/p463-010.htm#en_us_publink100034003A major improvement to a car is treated as a new item of 5-year
recovery property. It is treated as placed in service in the year the
improvement is made. It does not matter how old the car is when the improvement
is added. Follow the same steps for depreciating the improvement as you would
for depreciating the original cost of the car. However, you must treat the
improvement and the car as a whole when applying the limits on the depreciation
deductions. Your car's depreciation deduction for the year (plus any section 179
deduction, special depreciation allowance, and depreciation on any improvements)
cannot be more than the depreciation limit that applies for that year. See
Depreciation Limits, later.
If you traded one car (the "old car") in on another car (the
"new car") in 2010, there are two ways you can treat the transaction.
- You can elect to treat the transaction as a tax-free disposition
of the old car and the purchase of the new car. If you make this election, you
treat the old car as disposed of at the time of the trade-in. The depreciable
basis of the new car is the adjusted basis of the old car (figured as if 100% of
the car's use had been for business purposes) plus any additional amount you
paid for the new car. You then figure your depreciation deduction for the new
car beginning with the date you placed it in service. You make this election by
completing Form 2106, Part II, Section D. This method is explained later,
beginning at
Effect of trade-in on basis.
- If you do not make the election described in (1), you must
figure depreciation separately for the remaining basis of the old car and for
any additional amount you paid for the new car. You must apply two depreciation
limits (see
Depreciation Limits, later). The limit that applies to the remaining basis of
the old car generally is the amount that would have been allowed had you not
traded in the old car. The limit that applies to the additional amount you paid
for the new car generally is the limit that applies for the tax year, reduced by
the depreciation allowance for the remaining basis of the old car. You must use
Form 4562 to compute your depreciation deduction. You cannot use Form 2106, Part
II, Section D. This method is explained in Publication 946.
If you elect to use the method described in (1), you must do
so on a timely filed tax return (including extensions). Otherwise, you must use
the method described in (2).
taxmap/pubs/p463-010.htm#en_us_publink100034005The discussion that follows applies to trade-ins of cars in 2010,
where the election was made to treat the transaction as a tax-free disposition
of the old car and the purchase of the new car. For information on how to figure
depreciation for cars involved in a like-kind exchange (trade-in) in 2010, for
which the election was not made, see Publication 946 and Regulations section
1.168(i)-6(d)(3).
taxmap/pubs/p463-010.htm#en_us_publink100034006If you trade in a car you used only in your business for another
car that will be used only in your business, your original basis in the new car
is your adjusted basis in the old car, plus any additional amount you pay for
the new car.
taxmap/pubs/p463-010.htm#en_us_publink100034007Paul trades in a car that has an adjusted basis of $5,000 for
a new car. In addition, he pays cash of $20,000 for the new car. His original
basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus
the $20,000 cash paid). Paul's unadjusted basis is $25,000 unless he claims the
section 179 deduction, special depreciation allowance, or has other increases or
decreases to his original basis, discussed under
Unadjusted basis, earlier.
In September 2007, Marcia purchased a car for $26,000 and placed
it in service for 100% use in her business. Marcia did not claim a section 179
deduction. Marcia's unadjusted basis for the car was $26,000. For 2007 through
2009, Marcia figured her depreciation deduction using the MACRS depreciation
chart for those years.
In September 2010, Marcia traded that car in and paid $14,200
cash for a new car to be used 100% in her business. Marcia is allowed one-half
of the MACRS depreciation amount figured for 2010 for her old car. (See
Disposition of a Car, later.)
Marcia figures her basis in the new car as follows.
| Cost of old car | | $26,000 |
Less total depreciation allowed:
2010—($26,000 × .1152) ×
1/2
(Limit: $1,775)
| $1,498 | |
2009—($26,000 × .192)
(Limit: $2,850)
| 2,850 | |
2008—($26,000 × .32)
(Limit: $4,900)
| 4,900 | |
2007—($26,000 × .20)
(Limit: $3,060)
| 3,060 | |
| Total depreciation allowed | | –12,308 |
| | | |
| Adjusted basis
of old car and basis of part of new car that can be treated as newly purchased
MACRS property
| $ 13,692 |
| | | |
| Additional basis
(cash paid) for new car that is treated as newly purchased MACRS property
| +14,200 |
| | | |
| Total basis of new car | | $27,892 |
| | | |
If you trade in a car you used partly in your business for a
new car you will use in your business, you must make a "trade-in" adjustment for
the personal use of the old car. This adjustment has the effect of reducing your
basis in your old car, but not below zero, for purposes of figuring your
depreciation deduction for the new car. (This adjustment is not used, however,
when you determine the gain or loss on the later disposition of the new car. See
Publication 544, Sales and Other Dispositions of Assets, for information on how
to report the disposition of your car.)
To figure the unadjusted basis of your new car for depreciation,
first add to your adjusted basis in the old car any additional amount you pay
for the new car. Then subtract from that total the excess, if any, of:
- The total of the amounts that would have been allowable as
depreciation during the tax years before the trade if 100% of the use of the car
had been business and investment use, over
- The total of the amounts actually allowed as depreciation
during those years.
For information about figuring depreciation, see
Modified Accelerated Cost Recovery System (MACRS), which follows
Example 2, later.
In March, Mark traded his 2006 van (placed in service in June
2006) for a new 2010 model. He used the old van 75% for business and he used the
new van 75% for business in 2010. Mark claimed actual expenses (including
$10,956 depreciation expense) for the business use of the old van since 2006. He
did not claim a section 179 deduction for the old or the new van.
Mark paid $19,500 for the 2006 van in June 2006. He paid an additional
$12,500 when he acquired the 2010 van. Mark was allowed
1/
2
of the depreciation deduction amount (which is included in the $10,956
depreciation expense total) for his old van for 2010, the year of disposition,
as explained later under
Disposition of a Car.
Mark figures the unadjusted basis for depreciating his new van
as shown next.
| Cost of old van | $19,500 |
Less: Total depreciation allowed on
the business cost of old van
from 2006–2010
| −10,956 |
| Adjusted basis of old van before trade-in adjustment | $ 8,544 |
| | | |
| Trade-in adjustment: | | |
| Depreciation at 100% business use: | |
| 2010—($19,500 × .1152) ×
1/2 | |
| (Limit: $1,875) | $ 1,123 | |
| 2009—($19,500 × .1152) | |
| (Limit: $1,875) | 1,875 | |
| 2008—($19,500 × .192) | |
| (Limit: $3,150) | 3,150 | |
| 2007—($19,500 × .32) | |
| (Limit: $5,200) | 5,200 | |
| 2006—($19,500 × .20) | | |
| (Limit: $3,260) | 3,260 | |
| Total | $14,608 | |
Less: Actual depreciation
allowed
| −10,956 | |
| Excess of 100% over actual | $ 3,652 | |
| Less: Lesser of excess amount | |
($3,652)
or adjusted basis
of old van ($8,544)
| − 3,652 |
| | | |
Unadjusted basis of part of new van
that can be treated as newly
purchased MACRS property
| $ 4,892 |
| | | |
Additional basis (cash paid) for new
van that is treated as newly
purchased MACRS property
| $12,500 |
taxmap/pubs/p463-010.htm#en_us_publink100034011Rob paid $21,000 for a new car that he placed in service in 2007.
He used it partly for business in 2007 (9,600 business miles of 15,000 total
miles), 2008 (12,000 business miles of 16,000 total miles), and 2009 (14,400
miles of 18,000 total miles). He used the standard mileage rate in those years
to claim the business use of his car. (See
Depreciation adjustment when you used the standard mileage
rate under
Disposition of a Car,
later.)
On January 3, 2010, Rob traded in this car and paid an additional
$10,000 for his new car. Rob figures the unadjusted basis for his new car as
shown next.
| Cost of old car | | | $21,000 |
| Less: Total depreciation allowed: | | |
| 2009—14,400 mi. × .21 | $3,024 | | |
| 2008—12,000 mi. × .21 | 2,520 | | |
| 2007— 9,600 mi. × .19 | 1,824 | | − 7,368 |
| Adjusted basis of old car before trade-in adjustment | | | $13,632 |
| | | | |
| Trade-in adjustment: | | | |
| Depreciation at 100% business use: | | |
| 2009—18,000 mi. × .21 | $3,780 | | |
| 2008—16,000 mi. × .21 | 3,360 | | |
| 2007—15,000 mi. × .19 | 2,850 | | |
| Total | $9,990 | | |
Less: Actual depreciation
allowed
| − 7,368 | | |
| Excess of 100% over actual | $2,622 | | |
| Less: Lesser of excess amount | | |
($2,622)
or adjusted basis
of old car ($13,632)
| | − 2,622 |
| | | | |
Unadjusted basis of part of new car
that can be treated as newly
purchased MACRS property
| | $11,010 |
| | | | |
Additional basis (cash paid) for new
car that is treated as newly
purchased MACRS property
| | $10,000 |
The Modified Accelerated Cost Recovery System (MACRS) is the
name given to the tax rules for getting back (recovering) through depreciation
deductions the cost of property used in a trade or business or to produce
income.
The maximum amount you can deduct is limited, depending on the
year you placed your car in service. See
Depreciation Limits, later.
Under MACRS, cars are classified as 5-year property. You actually
depreciate the cost of a car, truck, or van over a period of 6 calendar years.
This is because your car is generally treated as placed in service in the middle
of the year, and you claim depreciation for one-half of both the first year and
the sixth year.
taxmap/pubs/p463-010.htm#en_us_publink1000254836Shorter recovery periods are provided under MACRS for qualified
Indian reservation property placed in service on Indian reservations after 1993
and before 2012. The recovery that applies for a business-use car is 3 years
instead of 5 years. However, the
depreciation limits, discussed later, will still apply.
For more information on the qualifications for this shorter recovery
period and the percentages to use in figuring the depreciation deduction, see
chapter 4 of Publication 946.
taxmap/pubs/p463-010.htm#en_us_publink100034014You can use one of the following methods to depreciate your car.
- The 200% declining balance method (200% DB) over a 5-year
recovery period that switches to the straight line method when that method
provides an equal or greater deduction.
- The 150% declining balance method (150% DB) over a 5-year
recovery period that switches to the straight line method when that method
provides an equal or greater deduction.
- The straight line method (SL) over a 5-year recovery period.
| If you use
Table 4-1 (discussed later under
MACRS depreciation chart) to determine your depreciation rate for 2010, you do not
need to determine in what year using the straight line method provides an equal
or greater deduction. This is because the chart has the switch to the straight
line method built into its rates. |
Before choosing a method, you may wish to consider the following
facts.
- Using the straight line method provides equal yearly deductions
throughout the recovery period.
- Using the declining balance methods provides greater deductions
during the earlier recovery years with the deductions generally getting smaller
each year.
A
2010 MACRS Depreciation Chart and instructions are included in this chapter as
Table 4-1. Using this table will make it easy for you to figure the 2010
depreciation deduction for your car. A similar chart appears in the
Instructions for Form 2106. | You may have to use the tables in Publication 946 instead
of using this
MACRS Depreciation Chart. |
You must use the
Depreciation Tables in Publication 946 rather than the
2010 MACRS Depreciation Chart
in this publication if any one of the following four conditions applies to you.
- You file your return on a fiscal year basis.
- You file your return for a short tax year (less than 12 months).
- During the year, all the following conditions apply.
- You placed some property in service from January through
September.
- You placed some property in service from October through
December.
- Your basis in the property you placed in service from October
through December (excluding nonresidential real property, residential rental
property, and property placed in service and disposed of in the same year) was
more than 40% of your total bases in all property you placed in service during
the year.
- You placed qualified property in service on an Indian reservation.
If you use the percentages from the chart, you generally must
continue to use them for the entire recovery period of your car. However, you
cannot continue to use the chart if your basis in your car is adjusted because
of a casualty. In that case, for the year of the adjustment and the remaining
recovery period, figure the depreciation without the chart using your adjusted
basis in the car at the end of the year of the adjustment and over the remaining
recovery period. See
Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946.
| In future years, do not use the chart in this edition of
the publication. Instead, use the chart in the publication or the form
instructions for those future years. |
taxmap/pubs/p463-010.htm#en_us_publink100034020If you dispose of the car before the end of the recovery period,
you are generally allowed a half year of depreciation in the year of disposition
unless you purchased the car during the last quarter of a year. See
Depreciation deduction for the year of disposition under
Disposition of a Car,
later, for information on how to figure the depreciation allowed
in the year of disposition.
To figure your depreciation deduction for 2010, find the percentage
in the column of the chart based on the date that you first placed the car in
service and the depreciation method that you are using. Multiply the unadjusted
basis of your car (defined earlier) by that percentage to determine the amount
of your depreciation deduction. If you prefer to figure your depreciation
deduction without the help of the chart, see Publication 946.
taxmap/pubs/p463-010.htm#en_us_publink1000134864
Table 4-1. 2010 MACRS Depreciation Chart
(Use to Figure Depreciation
for 2010.)
If you claim actual expenses for your car, use the chart
below to find the depreciation method and percentage to use for your 2010
return.
First, using the left column, find the date you first placed
the car in service. Then select the depreciation method and percentage from
column (a), (b), or (c) following the rules explained in this chapter.
| For cars placed in service before 2010, you must use the
same method you used on last year's return unless a decline in your business use
requires you to change to the straight line method. (See
Car Used 50% or Less for Business.)
Multiply the unadjusted basis of your car by your business
use percentage. Multiply the result by the percentage you found in the chart to
find the amount of your depreciation deduction for 2010. (Also see
Depreciation Limits.)
|
|
| | If you placed your car in service after September of any
year and you placed other business property in service during the same year, you
may have to use the Jan. 1—Sept. 30 percentage instead of the Oct.
1—Dec. 31 percentage for your car.
|
| | | | | | | |
| To find out if this applies to you, determine: 1) the basis
of all business property you placed in service after September of that year and
2) the basis of all business property you placed in service during that entire
year. If the basis of the property placed in service after September is not more
than 40% of the basis of all property (certain property is excluded) placed in
service for the entire year, use the percentage for Jan. 1—Sept. 30 for
figuring depreciation for your car. See
Which Convention Applies? in chapter 4 of Publication 946 for more details.
|
| | | | | | | |
| Example.
You buy machinery (basis of $32,000) in May 2010 and a new van (basis of
$20,000) in October 2010, both used 100% in your business. You use the
percentage for Jan. 1—Sept. 30, 2010, to figure the depreciation for your
van. This is because the $20,000 basis of the property (van) placed in service
after September is not more than 40% of the basis of all property placed in
service during the year (40% × ($32,000 + 20,000) = $20,800).
|
| | | | | | | |
| | | | (a) | (b) | (c) | |
| | Date Placed In Service | 200% Declining
Balance (200% DB)1 | 150% Declining Balance (150%
DB)1 | Straight Line
(SL)
| |
| | Oct. 1 — Dec. 31, 2010 | 200 DB 5.0% | 150 DB 3.75% | SL 2.5% | |
| | Jan. 1 — Sept. 30, 2010 | 200 DB 20.0 | 150 DB 15.0 | SL 10.0 | |
| | Oct. 1 — Dec. 31, 2009 | 200 DB 38.0 | 150 DB 28.88 | SL 20.0 | |
| | Jan. 1 — Sept. 30, 2009 | 200 DB 32.0 | 150 DB 25.5 | SL 20.0 | |
| | Oct. 1 — Dec. 31, 2008 | 200 DB 22.8 | 150 DB 20.21 | SL 20.0 | |
| | Jan. 1 — Sept. 30, 2008 | 200 DB 19.2 | 150 DB 17.85 | SL 20.0 | |
| | Oct. 1 — Dec. 31, 2007 | 200 DB 13.68 | 150 DB 16.4 | SL 20.0 | |
| | Jan. 1 — Sept. 30, 2007 | 200 DB 11.52 | 150 DB 16.66 | SL 20.0 | |
| | Oct. 1 — Dec. 31, 2006 | 200 DB 10.94 | 150 DB 16.41 | SL 20.0 | |
| | Jan. 1 — Sept. 30, 2006 | 200 DB 11.52 | 150 DB 16.66 | SL 20.0 | |
| | Oct. 1 — Dec. 31, 2005 | 200 DB 9.58 | 150 DB 14.35 | SL 17.5 | |
| | Jan. 1 — Sept. 30, 2005 | 200 DB 5.76 | 150 DB 8.33 | SL 10.0 | |
| | Prior to 20052 | | | | |
1
You can use this column only if the business use of your car is more than 50%.
2
If your car was subject to the maximum limits for depreciation and you have
unrecovered basis in the car, you can continue to claim depreciation. See
Deductions in years after the recovery period under
Depreciation Limits.
|
| Your deduction cannot be more than the maximum depreciation
limit for cars. See
Depreciation Limits, later. |
taxmap/pubs/p463-010.htm#en_us_publink100034024Phil bought a used truck in February 2009 to use exclusively
in his landscape business. He paid $9,200 for the truck with no trade-in. Phil
did not claim any section 179 deduction, the truck did not qualify for the
special depreciation allowance, and he chose to use the 200% DB method to get
the largest depreciation deduction in the early years.
Phil used the MACRS depreciation chart in 2009 to find his percentage.
The unadjusted basis of his truck equals its cost because Phil used it
exclusively for business. He multiplied the unadjusted basis of his truck,
$9,200, by the percentage that applied, 20%, to figure his 2009 depreciation
deduction of $1,840.
In 2010, Phil used the truck for personal purposes when he repaired
his father's cabin. His records show that the business use of his truck was 90%
in 2010. Phil used
Table 4-1
to find his percentage. Reading down the first column for the date placed in
service and across to the 200% DB column, he locates his percentage, 32%. He
multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90%
business use), by 32% to figure his 2010 depreciation deduction of $2,650.
There are limits on the amount you can deduct for depreciation
of your car, truck, or van. The section 179 deduction and special deprecation
allowance are treated as depreciation for purposes of the limits. The maximum
amount you can deduct each year depends on the year you place the car in
service. These limits are shown in the following tables.
taxmap/pubs/p463-010.htm#en_us_publink1000136520
Maximum
Depreciation Deduction
for Cars
| Date | | | | 4th & |
| Placed | 1st | 2nd | 3rd | Later |
| In Service | Year | Year | Year | Years |
| 2010 | $11,0601 | $4,900 | $2,950 | $1,775 |
| 2008–2009 | 10,9602 | 4,800 | 2,850 | 1,775 |
| 2007 | 3,060 | 4,900 | 2,850 | 1,775 |
| 2006 | 2,960 | 4,800 | 2,850 | 1,775 |
| 2005 | 2,960 | 4,700 | 2,850 | 1,675 |
| 2004 | 10,6102 | 4,800 | 2,850 | 1,675 |
5/06/2003–
12/31/2003
| 10,7103 | 4,900 | 2,950 | 1,775 |
1/01/2003–
5/05/2003
| 7,6604 | 4,900 | 2,950 | 1,775 |
| 2001–2002 | 7,6604 | 4,900 | 2,950 | 1,775 |
| 2000 | 3,060 | 4,900 | 2,950 | 1,775 |
| 1$3,060 if the car is not qualified property or if you elect
not to claim the special depreciation allowance.
|
| 2$2,960 if the car is not qualified property or if you elect
not to claim the special depreciation allowance.
|
| 3$7,660 if you acquired the car before 5/6/2003. $3,060
if the car is not qualified property or if you elect not to claim any special
depreciation allowance.
|
| 4$3,060 if you acquired the car before 9/11/2001, the car
is not qualified property, or you elect not to claim the special depreciation
allowance.
|
For 2010, the maximum depreciation deductions for trucks and
vans are generally higher than those for cars. A truck or van is a passenger
automobile that is classified by the manufacturer as a truck or van and rated at
6,000 pounds gross vehicle weight or less. For trucks and vans placed in service
before 2003, use the
Maximum Depreciation Deduction for Cars table.
Maximum
Depreciation Deduction
for Trucks and Vans
| Date | | | | 4th & |
| Placed | 1st | 2nd | 3rd | Later |
| In Service | Year | Year | Year | Years |
| 2010 | $11,1601 | $5,100 | $3,050 | $1,875 |
| 2009 | 11,0601 | 4,900 | 2,950 | 1,775 |
| 2008 | 11,1601 | 5,100 | 3,050 | 1,875 |
| 2007 | 3,260 | 5,200 | 3,050 | 1,875 |
| 2005–2006 | 3,260 | 5,200 | 3,150 | 1,875 |
| 2004 | 10,9101 | 5,300 | 3,150 | 1,875 |
| 2003 | 11,0102 | 5,400 | 3,250 | 1,975 |
| 1If the special depreciation allowance does not apply or
you make the election not to claim the special depreciation allowance, the first
year limit is $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for
2004, and $3,360 for 2003.
|
| 2If the truck or van was acquired before 5/06/03, the truck
or van is qualified property, and you claim the special depreciation allowance
for the truck or van, the maximum deduction is $7,960.
|
taxmap/pubs/p463-010.htm#en_us_publink1000140897The depreciation limits are not reduced if you use a car for
less than a full year. This means that you do not reduce the limit when you
either place a car in service or dispose of a car during the year. However, the
depreciation limits are reduced if you do not use the car exclusively for
business and investment purposes. See
Reduction for personal use later.
Marie purchased a car in June 2010 for $20,000 to use exclusively
in her business. She does not claim the section 179 deduction, but she does
claim the special deprecation allowance, and she chooses the 200% DB method of
depreciation.
Marie first figures her special depreciation allowance to be
$10,000 ($20,000 x 50%). Marie next figures her car's unadjusted basis to be
$10,000 ($20,000 – $10,000).
Marie's MACRS depreciation (using the rate from
Table 4-1) is $2,000 ($10,000 (unadjusted basis) × 20%). Marie's
total section 179, special depreciation allowance, and MACRS depreciation
deduction is $12,000 ($10,000 + $2,000). However, the maximum amount she can
deduct for depreciation is $11,060. (See the
Maximum Depreciation Deduction for Cars table earlier.)
The depreciation limits are reduced based on your percentage
of personal use. If you use a car less than 100% in your business or work, you
must determine the depreciation deduction limit by multiplying the limit amount
by the percentage of business and investment use during the tax year.
taxmap/pubs/p463-010.htm#en_us_publink100034031The section 179 deduction is treated as a depreciation deduction.
If you place a car that is not a truck or van in service in 2010, use it only
for business, and choose the section 179 deduction, the special deprecation
allowance, and the depreciation deduction for that car for 2010 is limited to
$11,060.
taxmap/pubs/p463-010.htm#en_us_publink100034032On September 4, 2010, Jack bought a used car for $10,000 and
placed it in service. He used it 80% for his business, and he chooses to take a
section 179 deduction for the car. The car is not qualified property for
purposes of the special depreciation allowance.
Before applying the limit, Jack figures his maximum section 179
deduction to be $8,000. This is the cost of his qualifying property (up to the
maximum $500,000 amount) multiplied by his business use ($10,000 × 80%).
Jack then figures that his section 179 deduction for 2010 is
limited to $2,448 (80% of $3,060). He then figures his unadjusted basis of
$5,552 (($10,000 × 80%) − $2,448) for determining his depreciation
deduction. Jack has reached his maximum depreciation deduction for 2010. For
2011, Jack will use his unadjusted basis of $5,552 to figure his depreciation
deduction.
taxmap/pubs/p463-010.htm#en_us_publink100034033If the depreciation deductions for your car are reduced under
the passenger automobile limits (discussed earlier), you will have unrecovered
basis in your car at the end of the recovery period. If you continue to use your
car for business, you can deduct that unrecovered basis (subject to depreciation
limits) after the recovery period ends.
taxmap/pubs/p463-010.htm#en_us_publink100034034This is your cost or other basis in the car reduced by any clean-fuel
vehicle deduction, alternative motor vehicle credit, electric vehicle credit,
gas guzzler tax, and depreciation (including any special depreciation allowance
unless you elect not to claim it) and section 179 deductions that would have
been allowable if you had used the car 100% for business and investment use.
taxmap/pubs/p463-010.htm#en_us_publink100034035For 5-year property, your recovery period is 6 calendar years.
A part year's depreciation is allowed in the first calendar year, a full year's
depreciation is allowed in each of the next 4 calendar years, and a part year's
depreciation is allowed in the 6th calendar year.
Under MACRS, your recovery period is the same whether you use
declining balance or straight line depreciation. You determine your unrecovered
basis in the 7th year after you placed the car in service.
taxmap/pubs/p463-010.htm#en_us_publink100034036If you continue to use your car for business after the recovery
period, you can claim a depreciation deduction in each succeeding tax year until
you recover your basis in the car. The maximum amount you can deduct each year
is determined by the date you placed the car in service and your business-use
percentage. For example, no deduction is allowed for a year you use your car
100% for personal purposes.
taxmap/pubs/p463-010.htm#en_us_publink100034037In April 2004, Bob bought and placed in service a car he used
exclusively in his business. The car cost $31,500. Bob did not claim a section
179 deduction, but he did claim the special depreciation allowance for the car.
He continued to use the car 100% in his business throughout the recovery period
(2004 through 2009). For those years, Bob used
Table 4-1
and the Maximum Depreciation Deduction for Cars table (as explained earlier) to
compute his depreciation deductions during the recovery period. Bob's
depreciation deductions were subject to the depreciation limits so he will have
unrecovered basis at the end of the recovery period as shown in the following
table.
| | MACRS | | | Deprec. |
| Year | % | Amount | Limit | Allowed |
| 2004 | 30.00*
| $ 9,450 | | |
| | 20.00 | 4,410 | $10,610 | $ 10,610 |
| 2005 | 32.00 | 7,056 | 4,800 | 4,800 |
| 2006 | 19.20 | 4,234 | 2,850 | 2,850 |
| 2007 | 11.52 | 2,540 | 1,675 | 1,675 |
| 2008 | 11.52 | 2,540 | 1,675 | 1,675 |
| 2009 | 5.76 | 1,270 | 1,675 | 1,270 |
| Total | $31,500
| | $22,880
|
| *30-percent special depreciation allowance. |
At the end of 2009, Bob had an unrecovered basis in the car
of $8,620 ($31,500 – $22,880). If Bob continued to use the car 100% for
business in 2010 and later years, he can claim a depreciation deduction equal to
the lesser of $1,675 or his remaining unrecovered basis.
If Bob's business use of the car was less than 100% during any
year, his depreciation deduction would be less than the maximum amount allowable
for that year. However, in determining his unrecovered basis in the car, he
would still reduce his original basis by the maximum amount allowable as if the
business use had been 100%. For example, if Bob had used his car 60% for
business instead of 100%, his allowable depreciation deductions would have been
$13,728 ($22,880 × 60%), but he still would have to reduce his basis by
$22,880 to determine his unrecovered basis.
taxmap/pubs/p463-010.htm#en_us_publink100034038If you use your car 50% or less for
qualified business use (defined earlier under
Depreciation Deduction) either in the year the car is placed in service or in a later
year, special rules apply. The rules that apply in these two situations are
explained in the following paragraphs. (For this purpose, "car" was
defined earlier under
Actual Car Expenses and includes certain trucks and vans.)
If you use your car 50% or less for qualified business use, the
following rules apply.
- You cannot take the section 179 deduction.
- You cannot take the special depreciation allowance.
- You must figure depreciation using the straight line method
over a 5-year recovery period. You must continue to use the straight line method
even if your percentage of business use increases to more than 50% in a later
year.
Instead of making the computation yourself, you can use column
(c) of
Table 4-1 to find the percentage to use.
In May 2010, Dan bought a car for $17,500. He used it 40% for
his consulting business. Because he did not use the car more than 50% for
business, Dan cannot take any section 179 deduction or special depreciation
allowance, and he must use the straight line method over a 5-year recovery
period to recover the cost of his car.
Dan deducts $700 in 2010. This is the lesser of:
- $700 (($17,500 cost × 40% business use) × 10% recovery
percentage (from column (c),
Table 4-1)), or
- $1,224 ($3,060 maximum limit × 40% business use).
If you use your car more than 50% in qualified business use in
the tax year it is placed in service but the business use drops to 50% or less
in a later year, you can no longer use an accelerated depreciation method for
that car.
For the year the business use drops to 50% or less and all later
years in the recovery period, you must use the straight line depreciation method
over a 5-year recovery period. In addition, for the year your business use drops
to 50% or less, you must recapture (include in your gross income) any
excess depreciation
(discussed later). You also increase the adjusted basis of your car by the same
amount.
In June 2007, you purchased a car for exclusive use in your business.
You met the more-than-50%-use test for the first 3 years of the recovery period
(2007 through 2009) but failed to meet it in the fourth year (2010). You
determine your depreciation for 2010 using 20% (from column (c) of
Table 4-1). You also will have to determine and include in your gross
income any excess depreciation, discussed next.
You must include any excess depreciation in your gross income and add it to your
car's adjusted basis for the first tax year in which you do not use the car more
than 50% in qualified business use. Use Form 4797, Sales of Business Property,
to figure and report the excess depreciation in your gross income.
Excess depreciation is:
- The amount of the depreciation deductions allowable for the
car (including any section 179 deduction claimed and any special depreciation
allowance claimed) for tax years in which you used the car more than 50% in
qualified business use, minus
- The amount of the depreciation deductions that would have
been allowable for those years if you had not used the car more than 50% in
qualified business use for the year you placed it in service. This means the
amount of depreciation figured using the straight line method.
In September 2006, you bought a car for $20,500 and placed it
in service. You did not claim the section 179 deduction. You used the car
exclusively in qualified business use for 2006, 2007, 2008, and 2009. For those
years, you used the appropriate MACRS Depreciation Chart to figure depreciation
deductions totaling $12,385 ($2,960 for 2006, $4,800 for 2007, $2,850 for 2008,
and $1,775 for 2009) under the 200% DB method.
During 2010, you used the car 30% for business and 70% for personal
purposes. Since you did not meet the more-than-50%-use test, you must switch
from the 200% DB depreciation method to the straight line depreciation method
for 2010, and include in gross income for 2010 your excess depreciation
determined as follows.
Total depreciation claimed:
(MACRS 200% DB method)
| | $12,385 |
Minus total depreciation allowable:
(Straight line method)
| |
| 2006—10% of $20,500 | $2,050 | |
| (Limit: $2,960) | | |
| 2007—20% of $20,500 | 4,100 | |
| (Limit: $4,800) | | |
| 2008—20% of $20,500 | 2,850 | |
| (Limit: $2,850) | | |
| 2009—20% of $20,500 | 1,775 | 10,775 |
| (Limit: $1,775) | | |
| Excess depreciation | | $1,610 |
In 2010, using Form 4797, you figure and report the $1,610 excess
depreciation you must include in your gross income. Your adjusted basis in the
car is also increased by $1,610. Your 2010 depreciation is $1,230 ($20,500
(unadjusted basis) × 30% (business use percentage) × 20% (from column
(c) of
Table 4-1
on the line for Jan. 1— Sept. 30, 2006)). However, your depreciation
deduction is limited to $533 ($1,775 x 30% business use).
If you lease a car, truck, or van that you use in your business,
you can use the standard mileage rate or actual expenses to figure your
deductible expense. This section explains how to figure actual expenses for a
leased car, truck, or van.
taxmap/pubs/p463-010.htm#en_us_publink100034046If you choose to use actual expenses, you can deduct the part
of each lease payment that is for the use of the vehicle in your business. You
cannot deduct any part of a lease payment that is for personal use of the
vehicle, such as commuting.
You must spread any advance payments over the entire lease period.
You cannot deduct any payments you make to buy a car, truck, or van even if the
payments are called lease payments.
If you lease a car, truck, or van for 30 days or more, you may
have to reduce your lease payment deduction by an "inclusion amount."
taxmap/pubs/p463-010.htm#en_us_publink100034047If you lease a car, truck, or van that you use in your business
for a lease term of 30 days or more, you may have to include an inclusion amount
in your income for each tax year you lease the vehicle. To do this, you do not
add an amount to income. Instead, you reduce your deduction for your lease
payment. (This reduction has an effect similar to the limit on the depreciation
deduction you would have on the vehicle if you owned it.)
The inclusion amount is a percentage of part of the fair market
value of the leased vehicle multiplied by the percentage of business and
investment use of the vehicle for the tax year. It is prorated for the number of
days of the lease term in the tax year.
The inclusion amount applies to each tax year that you lease
the vehicle if the fair market value (defined next) when the lease began was
more than the amounts shown in the following tables.
Cars
(Except for Trucks and Vans)
| | Year Lease Began | Fair Market Value | |
| | 2008–2010 | 18,500 | |
| | 2007 | 15,500 | |
| | 2005–2006 | 15,200 | |
| | 2004 | 17,500 | |
| | 2003 | 18,000 | |
| | 1999–2002 | 15,500 | |
| | Year Lease Began | Fair Market Value | |
| | 2010 | $19,000 | |
| | 2009 | 18,500 | |
| | 2008 | 19,000 | |
| | 2007 | 16,400 | |
| | 2005–2006 | 16,700 | |
| | 2004 | 18,000 | |
| | 2003 | 18,500 | |
taxmap/pubs/p463-010.htm#en_us_publink100034048Fair market value is the price at which the property would change
hands between a buyer and a seller, neither having to buy or sell, and both
having reasonable knowledge of all the necessary facts. Sales of similar
property around the same date may be helpful in figuring the fair market value
of the property.
Figure the fair market value on the first day of the lease term.
If the capitalized cost of a car is specified in the lease agreement, use that
amount as the fair market value.
taxmap/pubs/p463-010.htm#en_us_publink100034049Inclusion amounts are listed in
Appendix A for cars, in
Appendix B for trucks and vans, and in
Appendix C
for electric cars leased after August 5, 1997, and before 2007. If the fair
market value of the vehicle is $100,000 or less, use the appropriate appendix
(depending on the year you first placed the vehicle in service) to determine the
inclusion amount. If the fair market value is more than $100,000, see the
Revenue Procedure(s) identified in the footnote of the appendices for the
inclusion amount.
For each tax year during which you lease the car for business,
determine your inclusion amount by following these three steps.
- Locate the appendix that applies to you. To find the inclusion
amount, do the following.
- Find the line that includes the fair market value of the
car on the first day of the lease term.
- Go across the line to the column for the tax year in which
the car is used under the lease to find the dollar amount. For the last tax year
of the lease, use the dollar amount for the preceding year.
- Prorate the dollar amount from (1)(b) for the number of days
of the lease term included in the tax year.
- Multiply the prorated amount from (2) by the percentage of
business and investment use for the tax year. This is your inclusion amount.
On January 17, 2010, you leased a car for 3 years and placed
it in service for use in your business. The car had a fair market value of
$32,250 on the first day of the lease term. You use the car 75% for business and
25% for personal purposes during each year of the lease. Assuming you continue
to use the car 75% for business, you use
Appendix A-6
to arrive at the following inclusion amounts for each year of the lease:
Tax
year | Dollar
amount | Proration
| Business
use | Inclusion
amount |
| 2010 | $ 34 | 349/365 | 75% | $24 |
| 2011 | 74 | 365/365 | 75% | 56 |
| 2012 | 111 | 366/366 | 75% | 83 |
| 2013 | 132 | 16/365 | 75% | 4 |
For each year of the lease that you deduct lease payments, you
must reduce your deduction by the inclusion amount computed for that year.
If you lease a car for business use and, in a later year, change
it to personal use, follow the rules explained earlier under
Figuring the inclusion amount. For the tax year in which you stop using the car for business,
use the dollar amount for the previous tax year. Prorate the dollar amount for
the number of days in the lease term that fall within the tax year.
On August 16, 2009, Will leased a car with a fair market value
of $38,500 for 3 years. He used the car exclusively in his own data processing
business. On November 5, 2010, Will closed his business and went to work for a
company where he is not required to use a car for business. Using
Appendix A-5, Will computed his inclusion amount for 2009 and 2010 as shown
in the following table and reduced his deductions for lease payments by those
amounts.
Tax
year | Dollar
amount | Proration
| Business
use | Inclusion
amount |
| 2009 | $ 53 | 138/365 | 100% | $ 20 |
| 2010 | 117 | 309/365 | 100% | 99 |
If you lease a car for personal use and, in a later year, change
it to business use, you must determine the car's fair market value on the date
of conversion. Then figure the inclusion amount using the rules explained
earlier under
Figuring the inclusion amount. Use the fair market value on the date of conversion.
In March 2008, Janice leased a car for 4 years for personal use.
On June 1, 2010, she started working as a self-employed advertising consultant
and started using the leased car for business purposes. Her records show that
her business use for June 1 through December 31 was 60%. To figure her inclusion
amount for 2010, Janice obtained an appraisal from an independent car leasing
company that showed the fair market value of her 2008 car on June 1, 2010, was
$21,650. Using
Appendix A-6, Janice computed her inclusion amount for 2010 as shown in
the following table.
Tax
year | Dollar
amount | Proration
| Business
use | Inclusion
amount |
| 2010 | $13 | 214/365 | 60% | $5 |
For information on reporting inclusion amounts, employees should
see
Car rentals under
Completing Forms 2106 and 2106-EZ
in chapter 6. Sole proprietors should see the instructions for
Schedule C (Form 1040) and farmers should see the instructions for Schedule F
(Form 1040).
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