Depreciation 101: Vehicle Depreciation

Special limitations apply to depreciating vehicles that have a high potential for both business and personal use. This video goes into those limitations and how they're used to compute and report vehicle depreciation.

2024 UPDATE: Vehicle Depreciation Limits for 2024: 1st year - $20,400 (w/Special/Bonus Depreciation); $12,400 (w/o Special Depreciation); 2nd year - $19,800; 3rd year - $11,900; 4th and subsequent years - $7,160.

0:00 Introduction
0:35 What vehicles are subject to limitations?
1:29 MACRS and vehicle depreciation
2:23 How vehicle depreciation limits work
3:43 And example of vehicle depreciation
6:35 Reporting vehicle depreciation on form 4562
7:05 Conclusion

Additional Resources and Information:

Image/Video Sources:

Wikimedia Commons (CC-SA 2.0-4.0)
Alison Chan
Kgbo
Celica21gtfour
Jason Lawrence
Raysonho
Jekander

Intro Music: "Bluesy Vibes" - Doug Maxwell - YouTube Audio Library

Outro Music: "Modern Attempt" - Track Tribe via YouTube Audio Library

DISCLAIMER: This video is for educational and informational purposes only. It is not intended to render tax advice or financial advice for individual situations. If you have questions regarding your particular situation, please consult with a qualified tax or financial professional.

The information in this video is current as of date of publication, and is subject to changes.

[TheTaxGeek]

2024 UPDATE: Vehicle Depreciation Limits for 2024: 1st year - $20, 400 (w/Special/Bonus Depreciation); $13, 400 (w/o Special Depreciation); 2nd year - $19, 800; 3rd year - $11, 700; 4th and subsequent years - $7, 160.

[tita]

I've been searching and watching videos on depreciation and this one is the best I've found :)

[miriammiriamxoxo]

Thank you for providing such a clear breakdown to get an idea what hides behind the MACRS!! It's very helpful to see the bigger picture

[MRLINGERAYE]

Thank you so much for the video absolutely one of the best explained videos very informative and it is so great that you showed us the example using the form many people just tell you but never us The forum if possible can you do a video showing selling the car in the middle of the year and getting a new car for business and with that looks like on the

[SHINE]

Great video, how do you account for the business use percentage changing each year? Do you have a video on this?

[mike]

I worked for a very large corp for 20+ years. Think 100K employees public company. We had 700 company vehicles in our fleet. These were normal less than 6K lbs. we didn’t drive around with any mileage logs. We had to report to the company 3 things the 1st of each month. Beginning mileage. Ending mileage. And personal mileage. The personal mileage of let’s say 200 miles then was multiplied by the mileage rate for that year .50c for example. On our check we would be taxed in the $100 “benefit”. So we would see an additional $25 in federal taxes being withheld.

[MelissaLemoine-wo]

Do you have a video that goes into detail regarding claiming mileage vs. depreciation? Am I correct in understanding you cannot claim any of the depreciation methods AND milege?

[yaw]

For year 2, you have the revised basis as $70, 100. I understand you arrived at this amount because of the prior year deduction of $14, 400 from $84, 500 bringing it to $70, 100 as following year adjusted basis. But I thought the revised basis would be $63, 375 - $14, 400 = $48, 975.

I got $63, 375 because of 75% of $84, 500 original cost. $63, 375 would be the depreciable basis. Then moving forward the the $14, 400 would be deducted from $63, 375 instead of $84, 500 for the following year revised basis to be $48, 975 instead of $70, 100.

The tentative special depreciation I calculated to be $12, 675 because of the 20% first year MACRS rate. Second year rate is 32% as you pointed out in the video. Kindly let me know If my understanding is incorrect please. Thank you

[saleen]

On the example are you taking the 100% bonus as the tentative special depreciation instead of the 20% per the Marc’s table?

[sharkktongue]

Thank you for this great video, depreciation hurts my head 😅
Questions:
Is 179 same as bonus depreciation?
If the standard mileage deduction includes depreciation, does that mean the amount for standard mileage deduction amount is used as the depreciation expense amount?

[KumbaA]

Thanks for the informative video. Once the cost of the car is recovered, in 2030 from your example, does he need to switch to the standard mileage deduction? Is he no longer allowed to use the MARCS method?

[BucksBe]

That is a very clear explanation. Thank you for the video. I'm deciding whether to report my vehicle depreciation and enjoy the tax benefits now vs. if I sell this car in the next year or two and how that would impact my tax liability. Can you explain what happens if you sell/trade in a vehicle before the 5-year MACRS schedule has expired?

[andrewsnyder]

i purchased most of my cars from a dealer. Do i include all additional dealer expenses such as tax tag title fees taxes etc in the basis cost? Or do I only use the price of the car before all other expenses?

[michaelelkin]

What if the car was not purchased for business use, or business use was not tracked because the driver did not know. Then at some point they started tracking miles and expenses. Would that day become the in-service date for depreciation and use the car value at the time or must the original purchase date and price, or some other date?

[LAJERSEY]

Car depreciation also use both Mid Year and Mid Quater timing? The day the car is put to service. Gees so complicated, thank you.

[yolandabrown]

Thank you for the excellent breakdown...question, how would you handle depreciation expense for two businesses that use the same car. One use is 70% for business and 20% for the other business. I appreciate your direction...also will check your channel for answers, as well

[nadname]

If the car was used for rent to customers (100% business use), not by owner or employee. Are the rules the same as for listed property, and the same limits are applicable?
Thank you

[Godsolovedtheworld]

Hello. Do i have to depreciate my business equipment or I can choose not to? Thank you.

[mohammadalamgir]

A taxpayer acquires a $30, 000 passenger car in 2018 for use in their trade or business. The car is bonus eligible and the taxpayer does not elect out of bonus depreciation. The applicable convention is half-year and the automobile is used 80% for business. What is the 2018 depreciation deduction?

[victoriakurtz]

Love your videos! Another question: A small business owner who purchased a new vehicle (90% work usage) is using special depreciation. Do they need to fill out lines 25 AND 26 on form 4562? Or just line 25, and omit the car details on line 26?