# 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

QuickBooks Self-Employed