The maximum amount you can deduct is limited, depending on the year you placed your car in service. See Depreciation Limits, later.
Recovery period. Under MACRS, cars are classified as 5-year property. You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. This is because your car is generally treated as placed in service in the middle of the year and you claim depreciation for one-half of both the first year and the sixth year.
Depreciation deduction for certain Indian reservation property. Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2004. The recovery period that applies for a business-use car is 3 years instead of 5 years. However, the depreciation limits, discussed later, will still apply.
For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 3 of Publication 946.
Depreciation methods. You can use one of the following three methods to depreciate your car.
1. The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides a greater deduction.
2. The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides a greater deduction.
3. The straight line method (SL) over a 5-year recovery period.
If you use Table 3 (discussed later) to determine your depreciation rate for 1999, you do not need to determine in what year your deduction is greater using the straight line method. This is because the chart has the switch to the straight line method built into its rates.
Before choosing a method, you may wish to consider the following facts.
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1. Using the straight line method provides equal yearly deductions throughout the recovery period.
2. Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year.
MACRS depreciation chart. A 1999 MACRS Depreciation Chart and instructions are included in this chapter as Table 3. Using this table will make it easy for you to figure the 1999 depreciation deduction for your car. A similar chart appears in the Instructions for Form 2106.
You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart.
You must use the Depreciation Tables in Publication 946 rather than the MACRS depreciation chart in this publication if any one of the following three conditions applies to you.
1. You file your return on a fiscal year basis.
2. You file your return for a short tax year (less than 12 months).
3. During the year, all of the following conditions apply to you.
a. You placed some property in service from January through September.
b. You placed some property in service from October through December.
c. Your basis in the property you placed in service from October through December was more than 40% of your total bases in all property you placed in service during the year.
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Depreciation in future years. If you use the percentages from the chart, you must continue to use them for the entire recovery period of your car. However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. In that case, for the year of adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of adjustment and over the remaining recovery period. See How To Figure the Deduction Without Using the Tables in chapter 3 of Publication 946.
In future years, do not use the chart from this publication. Instead, use the chart in the publication or the form instructions for those future years.
Disposition of car during recovery period. If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition.
How to use the 1999 chart. To figure your depreciation deduction for 1999, find the percentage in the column of the chart based on the date that you first placed the car in service and the depreciation method that you are using. Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946.
Your deduction cannot be more than the maximum depreciation limit for cars.
Example. Phil bought a used truck in February 1998 to use exclusively in his landscape business. He paid $6,200 for the truck with no trade-in. Phil did not claim any section 179 deduction and he chose to use the 200% DB method to get the largest depreciation deduction in the early years.
Phil used the MACRS depreciation chart in 1998 to find his percentage. The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. He multiplied the unadjusted basis of his truck, $6,200, by the percentage that applied, 20%, to figure his 1998 depreciation deduction of $1,240.
In 1999, Phil used the truck for personal purposes when he repaired his father's cabin. His records show that the business use of his truck was 90% in 1999. Phil used Table 3 to find his percentage. Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. He multiplies the unadjusted basis of his truck, $5,580 ($6,200 cost × 90% business use), by 32% to figure his 1999 depreciation deduction of $1,786.
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.