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Friday, January 13, 2017

Actual Expense Method for Business Use of a Vehicle


Choosing the Actual Expense Method


If you do not choose the standard mileage rate method, you can chooses the actual expense method for the business use of your vehicle.


Under this method, you can deduct the business use percentage of your various automobile expenses.


To figure your business use percentage, simply divide the number of business miles by the total mileage for the year.


Actual Car Expenses Include




Garage Rent


Lease Payments




Parking Fees

Registration Fees


Road Tolls



Interest Expense


If you are an employee, you cannot deduct any interest paid on the car.


Taxes Paid On The Car


If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions on Schedule A (Form1040).




Depreciation, Special Allowance, Section #179 Deduction.


Under the actual expense method, you can recover the (business use percentage) cost of your vehicle by depreciation each year.


Generally, there are annual limits (on the combined Section #179 Deduction, Special Depreciation Allowance Deduction, and Regular MACRS Depreciation Deduction) shown in the applicable IRS Tables.


The depreciation limits are not reduced if you use your care for less than a full year.


The depreciation limits are reduced if your business use of the car is less than 100%.


MACRS Depreciation Methods are used to figure depreciation on vehicles:


            Passenger Vehicles are under the Listed Property category


            Must use your care more that 50% for business each year.


            3 Depreciation Options:

  • 200% DB/HY Convention/5 year recovery period
  • 150% DB/HY Convention/5 year recovery period
  • Straight Line/5 year recovery period
                                                                Section #179
  • Section #179 must be claimed only in the year you place the car in service.
  • You must use the car more than 50% for business.
                                                                Special Depreciation Allowance
  • Amount allowed per year is based on annual IRS rules.
    To figure depreciation, your need to know the following:
  • Your basis in the car
  • The date the car was placed in service
  • The depreciation method and recovery period you will use.
    Is generally the cost of the car (this includes any amount borrow or pay in cash, other property, and services)
    Placed In Service:
    Depreciation begins when you place your car in service (when it is available for use in your business).
    Method of Depreciation:
    See above for the various methods.
    Business Use Percentage:
    You need to keep written mileage logs of the total mileage and the total business mileage for the vehicle each year.
    Tax Tip:
    Claiming business use of an auto requires detailed record-keeping that documents and substantiates to the IRS should an audit occur. It can be an audit target as it is prone to abuse. With proper records, you can feel confident you will prevail should the IRS question your tax return.
    This article was written by Donald M. Scherzi, CPA, CFP, LLC
    Mike Lupo, SCORE Counselor

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