Switching to the Actual Expense Method

You may switch from the mileage allowance method to the actual expense method for the same vehicle, but, you may not switch from the actual expense method to the mileage allowance method for the same vehicle.

If you switch from the mileage allowance method to the actual expense method, you must use straight-line depreciation for that vehicle for its remaining recovery period, provided there is still sufficient basis remaining.

Bear in mind, the mileage allowance has built into it an allowance for depreciation. Consequently, if the depreciation portion of the mileage allowance that you've been deducting over the years would reduce the vehicle's basis to zero, no additional depreciation may be deducted for that vehicle at the time you switch to the actual expense method.

The depreciation portion included in the business mileage allowance is as follows:

  • 23 cents per mile: 2012-2013
  • 22 cents per mile: 2011
  • 23 cents per mile: 2010
  • 21 cents per mile: 2009 and 2008
  • 19 cents per mile: 2007
  • 17 cents per mile: 2006 and 2005
  • 16 cents per mile: 2004 and 2003
  • 15 cents per mile: 2002 and 2001
  • 14 cents per mile: 2000
  • 12 cents per mile: 1994-1999

Keep in mind, if you dispose of your vehicle, you must reduce its basis by the above amounts for purposes of determining gain or loss.

Leased Vehicles

If you start using the IRS mileage allowance method for a leased vehicle, you must use it for the entire lease period, including renewals.

If you use your vehicle for both business and personal use, multiply the total lease charges by your business-use percentage to find the deductible amount.

For example, if you traveled a total of 60,000 miles for the year for personal and business purposes in your vehicle and your business miles for the year were 48,000, your business-use percentage is 80% (48,000/60,000). If your lease charges were $3,600, your deductible amount would be $2,880 ($3,600 x 80%).

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