Business Auto Deduction Question

[bigbilljohnson]

Scenario:
I had a used car that was placed into business in 2011. It was used 60% for business. I took standard milage deduction each year. In June 2014, it was worth roughly $4000 and then the engine went kaput. I sold it for $100. Bought new car for business...

Question: Can I do both of the following in 2014:
(1) Take standard mileage deduction for old car for first half of year?
(2) Take actual expense deduction for new car for second half of year?

Thanks for any advice pointing me in the right direction.

BillJ

 

[LdiJ]

Scenario:
I had a used car that was placed into business in 2011. It was used 60% for business. I took standard milage deduction each year. In June 2014, it was worth roughly $4000 and then the engine went kaput. I sold it for $100. Bought new car for business...

Question: Can I do both of the following in 2014:
(1) Take standard mileage deduction for old car for first half of year?
(2) Take actual expense deduction for new car for second half of year?

Thanks for any advice pointing me in the right direction.

BillJ

Why would you want to do that? Particularly on a new car where everything is under warranty you are going to come out ahead taking mileage rather than actual expenses.

 

[tranquility]

But, from what I understand what you're saying, yes. My understanding the requirement for standard as opposed to actual depends on the vehicle. I'm not sure, but like LdiJ wrote, it never really came up.

Perhaps you can give some numbers for better advice.

 

[bigbilljohnson]

Why would you want to do that? Particularly on a new car where everything is under warranty you are going to come out ahead taking mileage rather than actual expenses.

I don't drive that many miles per year (10,000), of which (6,000) is for business. Based on my understanding, the 2014 depreciation alone ($6,696) on the new vehicle would be significantly higher than my entire standard mileage deduction. Also, I'm in the top tax bracket for 2014…

Edit to add:
Standard Mileage Deduction:
6,000 x .56 = $3360 total deduction

Actual Costs Deduction:
($11,160 x .6) = $6696 depreciation + gas + insurance + etc. + etc.

 

[bigbilljohnson]

But, from what I understand what you're saying, yes. My understanding the requirement for standard as opposed to actual depends on the vehicle.

Thanks for the reply. Would you kindly point me in the direction of a Pub, online source, etc where you are getting this interpretation?

Perhaps you can give some numbers for better advice.

Absolutely! What numbers are needed?

 

[Zigner]

My understanding is that if you use the actual expense method for the first year, then you always have to use that method. If you take the standard mileage deduction the first year, then you can choose which method to use in future years. Perhaps one of the other Seniors can comment on this?

 

[bigbilljohnson]

My understanding is that if you use the actual expense method for the first year, then you always have to use that method. If you take the standard mileage deduction the first year, then you can choose which method to use in future years.

Thanks for the reply. Yes, what you said is correct. And I used the "standard mileage deduction" for the first year on the old car.

Now trying figure out if I can continue to do so in 2014, while in the same year, take an "actual costs deduction" for the new car.

 

[Zigner]

Thanks for the reply. Yes, what you said is correct. And I used the "standard mileage deduction" on the first year on the old car. Now I'm trying figure out if I can continue to do so in 2014, while in the same year, taking an "actual costs deduction" for the new car.

Do you intend to be stuck always using the actual costs method for the lifetime of the new car?

 

[bigbilljohnson]

Do you intend to be stuck always using the actual costs method for the lifetime of the new car?

Yes, that is my intention.

 

[LdiJ]

I don't drive that many miles per year (10,000), of which (6,000) is for business. Based on my understanding, the 2014 depreciation alone ($11,160) on the new vehicle would be significantly higher than my entire standard mileage deduction. Also, I'm in the top tax bracket for 2014...

The depreciation rules for automobiles are quite complicated. There are depreciation limits and the limits are well below the 11160.00 that you think that you can deduct. The limit for year one is somewhere around 3000.00. Please review publication 463 and publication 3991 for information on depreciation of automobiles and the exact limits.

Also, please note that since you do not use the car exclusively for business, if its only 60% business use then that lowers your limit to 60% of the original limit.

 

[bigbilljohnson]

The depreciation rules for automobiles are quite complicated. There are depreciation limits and the limits are well below the 11160.00 that you think that you can deduct. The limit for year one is somewhere around 3000.00. Please review publication 463 and publication 3991 for information on depreciation of automobiles and the exact limits.

Also, please note that since you do not use the car exclusively for business, if its only 60% business use then that lowers your limit to 60% of the original limit.

From Pub463:
Combined depreciation. Your combined section 179 depreciation, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). See Depreciation Limits, later in this chapter.

Maximum Depreciation for cars (2012-2015):
Year One: $11,160
Year Two: $5,100
Year Three: $3,050
Later Years: $1875

https://www.irs.gov/pub/irs-pdf/p463.pdf

 

[LdiJ]

From Pub463:
Combined depreciation. Your combined section 179 depreciation, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). See Depreciation Limits, later in this chapter.

Maximum Depreciation for cars (2012-2015):
Year One: $11,160
Year Two: $5,100
Year Three: $3,050
Later Years: $1875

https://www.irs.gov/pub/irs-pdf/p463.pdf

Okay, make sure that the special depreciation allowance is applicable to you, I was not aware that it had been extended to automobiles but obviously it has.

Also, once you know for sure the purchase price of the car you are purchasing make sure that the maximum applies to that car.

 

[bigbilljohnson]

Okay, make sure that the special depreciation allowance is applicable to you, I was not aware that it had been extended to automobiles but obviously it has. Also, once you know for sure the purchase price of the car you are purchasing make sure that the maximum applies to that car.

Thanks for the reply. The bonus depreciation does apply to me. The car was purchased new in 2014 at roughly $41,000.

But I'm still not sure if I can deduct the actual costs + depreciation of the new car AND use the standard mileage rate (+ a capital loss) on the old one. All in 2014??

 

[davew128]

Thanks for the reply. The bonus depreciation does apply to me. The car was purchased new in 2014 at roughly $41,000.

But I'm still not sure if I can deduct the actual costs + depreciation of the new car AND use the standard mileage rate (+ a capital loss) on the old one. All in 2014??

One has nothing to do with the other.

 

[bigbilljohnson]

One has nothing to do with the other.

Thanks Dave. Are you getting that from Pub463? I can't seem to find that answer anywhere!