6 Things to Know About Depreciating Your Vehicle

1. Tax form to use

  • Use Form 4562 to claim depreciation.

2. When to start depreciation

  • Start depreciation in the year the property is placed in service.
  • The term "placed in service", for depreciation purposes, has a specific meaning.
    • Property is placed in service only if it is both available and ready for use in the same tax year.
  • If property is both ready and available for use, but is not actually being used in the year it is ready and available, it is still considered placed in service you may begin depreciating the property.

3. When to stop depreciation

  • Stop depreciation when property is fully depreciated or
  • When you retire it or dispose of it, whichever comes first.

4. Disposing of vehicle in same year it is placed in service

  • If you place a car (or any depreciable property) in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that vehicle.

5. Depreciable basis

The vehicle's depreciable basis is the dollar amount to be depreciated and includes:

  • Money you paid, PLUS
  • The value of property you gave up, PLUS
  • Debt you incurred, for example, a car loan, PLUS
  • Sales tax, PLUS
  • Any other costs related to the purchase

Major improvements, such as replacing the engine in a car are depreciable.

Depreciation and casualty losses previously deducted reduce basis.

6. Converting vehicle to business use

If you convert your vehicle from personal use to business use, your depreciable basis at the date of conversion is the LOWER of:

  • Your adjusted basis (generally your original cost), or
  • Fair market value (FMV) at the date of conversion

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