What is the Actual Expense Method?
Under the actual expense method you may deduct business-related operating expenses plus depreciation.
If you start out using the actual expense method for a particular vehicle the first year it's placed in service
for business use, you may not switch to the mileage allowance method for that particular vehicle in any
Deductible Car Expenses
- Garage rent
- Interest on your car loan
- Self-employed persons can deduct interest on a car loan. Multiply the annual interest by your business-use percentage to figure the deductible amount.
- The nonbusiness-related portion of the interest is a nondeductible personal expense.
- Employees are out of luck. Car loan interest is not deductible even if the vehicle is used for the job.
- Depreciation for vehicles:
- See IRS Publication 4562 Instructions, page 16 for annual depreciation limits for passenger passenger cars (Table 3) and light trucks, vans, and SUVs weight-rated 6,000 pounds or less Table 4).
- Bonus depreciation for new vehicles placed in service
in 2012 is
- You add the $8,000 to the regular annual depreciation limits for
passenger cars ($3,160 plus $8,000 = $11,160 annual ceiling) and
light trucks, vans, and SUVs 6,000 pounds or less ($3,360 plus
$8,000 = $11,360 annual depreciation ceiling).
- SUVs and trucks weight-rated over 6,000 pounds are not
subject to annual depreciation ceilings, however, first-year expensing for the vehicle may be limited to $25,000 rather than the regular expensing limit, which is $139,000. The vehcile must be used more than 50% for busness to qualify for first-year expensing.
- Also see
Depreciating Your Vehicle- Six Things to Know about Depreciating
- Lease payments:
- If in 2012 you lease a vehicle for a lease term of 30 days or
more, you may have to indirectly report as income an amount based on an IRS table. This rule applies if you deduct the business portion of your lease payents plus other operating costs; it does not apply if you claim the standard mileage allowance. The way this works is, rather than actually including an amount in income, instead, you simply reduce the lease charges by a so-called "inclusion" amount shown in the lease table in IRS Publication 463 page 24.
- Parking fees
- Registration fees
- Personal property tax for vehicles:
- Some states charge a registration fee based on the value of the vehicle rather than its weight, model, year, or horsepower.
- The part of the fee related to the value of the vehicle is a personal property tax.
- If you use your vehicle less than 100% for business, deduct the business portion of the entire registration fee as a business expense. Deduct the non-business portion of the personal property tax on Schedule A if you itemize your deductions (the personal property tax line).
- States that assess a personal property tax on vehicles: AL, AZ, AR, CA, CO, GA, IN, IO, KY, LA, MI, MN, MS, MO, MT, NE, NV, NH, SC, WA, WY
- Check with your state
- Repairs and maintenance
Car Expenses: 100% Business Use of Vehicle Under the Actual Expenss Method