Only the $9,000 cash Stella paid qualifies for the section 179 deduction. If she does not choose section 179, her basis for depreciation is $12,000. The total of her section 179 and depreciation deductions is limited to $3,060, the first year maximum. If she does not choose section 179, her depreciation deduction, using the MACRS method (discussed later), is $2,400 [$12,000 basis × 20% (double declining balance rate)] from Table 3, explained later.

When to choose. If 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. Employees use Form 2106 to make this choice and report the section 179 deduction. All others use Form 4562. Make your choice by taking the deduction on the appropriate form and file it with your original tax return. You cannot make the choice on an amended tax return filed after the due date (including extensions). If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). Attach the election to the amended return and write "Filed pursuant to section 301.9100-2" on the election statement. File the amended return at the same address you filed the original return. Once made, the choice can be changed only with the consent of the Internal Revenue Service (IRS).

Reduction in business use. To 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 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.

Dispositions. 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 depreciation you claimed. For information on the disposition of depreciable property, see chapter 3 of Publication 544, Sales and Other Dispositions of Assets.

The Vehicle Mileage & Maintenance Record Book is designed for busy professionals like you who are tired of cheap tax information recording tools that fall apart and don't provide adequate room on forms for writing. Order one of our auto mileage logs today and start making this essential task simple and quick. Each book comes with a MONEY BACK GUARANTEE!  Click here to order by using our online shopping cart, downloadable order form, or through Amazon.com.