Business Use of Automobile

I am in the process of purchasing a new vehicle for business use.  I want to purchase this before the end of the year for tax reasons.
A point of clarification.  You sent me correspondence to me that explains the depreciation schedule.  It is somewhat based on Gross Vehicle Weight.
Am I correct in assuming the depreciation of a new vehicle for business use is in lieu of taking the Federal mileage deduction which is currently .535 a mile for the 5 years following the purchase?
For example, if I purchase a new vehicle under 6,000 GVW at $ 32,000, I would take a first year deduction of $3,160.  If I purchase a vehicle at or above 6,000 GVW @ $32,000, I would take a deduction of $ 16,000 the first year and 4,000 each year for the remaining 4 years.  Would I also be able to claim a separate business mileage use deduction on this new vehicle in the following 4 years, or am I allowed to claim only the applicable depreciation allowance as described above?
I believe you indicated after 5 years the business use mileage allowance is reduced by .19 per mile because the depreciation was taken in the preceding 5 years.
Please advise if I am correct in my understanding.
Thanks for your advice on this.
______________________________________________________________________________________________
Dear business automobile purchaser,

If you elect to depreciate a vehicle, you must use the “Actual Cost” method of deducting expenses for the rest of the life of that automobile.  That not only includes depreciation, but fuel, oil, maintenance, car washes, etc.  You are not allowed to take the federal mileage rate for that vehicle.  This rule is on a vehicle basis, so other vehicles may use the standard mileage rate.  By the way, parking fees (for business) are separate and 100% deductible.

If your vehicle is over 6,000 lbs GVW, it also qualifies for a first year Sec. 179 deduction of $25,000.  After reducing the cost by $25,000, the remaining cost is subject to the maximum depreciation deduction of $11,160 in the first year.

The depreciation portion of the standard mileage rate (.22 cents in 2018) is only used for calculating the adjusted basis of the automobile for calculating gain or loss on the disposition of the automobile.

You may start with the standard mileage allowance on any particular vehicle and later switch to the actual cost method (as described above).  However, the remaining cost basis of the vehicle, for depreciation purposes, will be determined by how many business miles were driven times the depreciation mileage rate in effect for each year.  For example:

2017 mileage:  14,900 x 0.19 = 2,831

2016 mileage:  15,100 x 0.24 = 3,624

2015 mileage:  16,700 x 0.22 = 3,674

Total                                        10,129

If the car originally cost $25,000, the remaining cost that could be depreciated is $14,871 ($25,000 – $10,129).

Keep in mind that you must multiply all of the actual costs, including deprecation, by your business use percentage; e.g., business miles 14,900, total miles put on that car 16,000, means a business use of 93.13%.

Leave a Comment