Changing From Personal Use to Business Use During the Year and Computation of Vehicle Deduction

Vehicle Changed to Business Use

  • Jack uses his car for personal use from January 1, through March 31 (3 months) for personal use.
  • Jack starts a business in April.
  • He starts using his vehicle for business purposes April 1 through December 31 (9 months)
  • Jack's business miles from April 1 through December 31 are 20,000 miles.
  • Jack's total miles traveled April 1, through December 31, including personal miles, are 25,000.
  • The problem is, Jack doesn't know what his personal miles were during the first three months of the year (January 1st and March 31st).

To find Jack's business-use percentage:

  • Divide his business miles traveled April 1 through December 31 by his total miles traveled April 1 through December 31. You end up with a percentage.
  • Next, multiply the percentage determined above by the fraction of the year he used his car for business.

Using Jack's numbers to find his business-use percentage:

First, divide 20,000 business miles (April through December) by 25,000 total miles (which includes business and personal miles) = 80%

Next, multiply 80% x 9/12 (April through December) = 60%, this is his business-use percentage.

Computation of Jack's Vehicle Deduction

  • Jack is self-employed
  • He operates a sole proprietorship
  • Jack uses the actual expense method to deduct his vehicle expenses.
  • Jack's annual operating expenses for his vehicle were $4,000
  • The maximum annual depreciation deduction for passenger cars placed in service in 2013 is $3,160
  • Jack paid $500 interest on his car loan
  • The vehicle's registration fee was $250. Jack lives in Arizona, one of the states that assesses a personal property tax on vehicles as part of the registration fee.
  • Bonus depreciation for 2013: $8,000. Jack's car was purchased new during 2013 and placed in service in 2013 and therefore, qualifies for bonus depreciation.

On Schedule C, line 9, Jack enters $9,546 as his vehicle deduction, figured as follows:

  • Operating expenses: $2,400 (60% x $4,000)
  • Depreciation:  $1,896 ($60% x $3,160)
  • Interest:  $300 (60% x $500)
  • Registration fee: $150 (60% x $250). The remaining 40% is deducted as an itemized deduction on Schedule A line 7.
  • Bonus Depreciation: $4,800 (60% x $8,000 maximum allowed for new vehicles 6,000 pounds of less)

Total Vehicle deduction: $9,546

File your personal and small business taxes (Schedule C)