Percentage of business use. Generally, you must use your car more than 50% for qualified business use (defined next) to qualify for the section 179 deduction and MACRS deduction. If your business use is 50% or less, you must use the straight line method to depreciate your car. This is explained later under Car Used 50% or Less for Business.

Qualified business use. A 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.

Use of your car by another person. Do 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 three conditions.

1.      It is directly connected with your business.

2.      It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income).

3.      It results in a payment of fair market rent. This includes any payment to you for the use of your car.

Business use changes. 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 Business use drops to 50% or less in a later year under Car Used 50% or Less for Business, later.

More-than-50%-use test. You meet this test for any tax year if you use your car more than 50% in qualified business use. You must meet this test each year of the recovery period (6 years under MACRS) for your car.

If 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.

Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death.

Change from personal to business use. If 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.

1.      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.

2.      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.

Example. 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).

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