Depreciating Improvements Made to a Vehicle

If you make any major improvement to your vehicle (e.g., new engine, air conditioning) you can depreciate the improvement.

A major improvement for a car is treated as a new item of 5-year recovery property. It is treated as placed in service in the year the improvement is made. It doesn't matter how old the car is either.

Follow the same steps for depreciating the improvement as you would for deprecating the original cost of the car.

Depreciation ceilings still apply. You must treat the improvement and the car as a whole (as one unit) when applying the annual limits on the depreciation deduction.

Your car's depreciation deduction for the year plus any first-year expensing deduction (Section 179) and the depreciation allowance on any improvements cannot be more than the depreciation limit that applies for the year.

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