Excess depreciation is:

1.      The amount of the depreciation deductions allowable for the car (including any section 179 deduction claimed) for tax years in which you did not use the car more than 50% in qualified business use, minus

2.      The amount of the depreciation deductions that would have been allowable for those years if you had used the car more than 50% in qualified business use for the year you placed it in service.

Example. On June 25, 1996, you bought a car for $11,000 and placed it in service. You did not claim the section 179 deduction. You used the car exclusively in qualified business use for 1996, 1997, and 1998. For those years, you used the appropriate MACRS Depreciation Chart to figure depreciation deductions totaling $7,832 ($2,200 for 1996, $3,520 for 1997, and $2,112 for 1998) under the 200% DB method.

During 1999, you used the car 50% for business and 50% for personal purposes. Since you did not meet the more-than-50%-use test, you must include in gross income for 1999 your excess depreciation determined as follows.

In 1999, you must include $2,332 in your gross income using Form 4797. Your adjusted basis in the car is also increased by $2,332. Your 1999 depreciation deduction is $1,100 [$11,000 (unadjusted basis) × 50% (business use percentage) × 20% (from column (c) of Table 3 on the line for Jan. 1-- Sept. 30, 1996)].

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