Limit on total section 179 and depreciation deductions. Generally, the total amount of section 179 and depreciation deductions that you can claim for a car that you place in service in 1999 cannot be more than $3,060. The limit is reduced if your business use of the car is less than 100%. See Depreciation Limits, later, for more information.

Example. Peter, in the previous example, had a car with a qualifying cost of $2,700 for his section 179 deduction. However, Peter is limited to a total section 179 deduction plus depreciation deduction of $1,836 ($3,060 limit × 60% business use).

Cost of car. 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.

Basis of car. The amount of the section 179 deduction reduces your basis in your car. If you choose the section 179 deduction, you must reduce your basis in your car before you figure your depreciation deduction.

Choosing a section 179 deduction can give you a larger total deduction (depreciation plus section 179 deduction) in the first year. Not choosing it can give you a larger depreciation deduction in later years.

Example. On January 2, 1999, Stella bought a car for $12,000, including sales tax, to use exclusively in her delivery business. She paid $9,000 cash and received $3,000 in trade for her old car (also used in her business). Her adjusted basis in her old car was $3,000.

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