Car Depreciation Tax Deduction

by Steve Lander
Some of your car's value can be depreciated.

If you use a car for business purposes, the Internal Revenue Service lets you write off the expenses you incur in owning it. One allowed expense is depreciation, which is a way of accounting for your car's gradual loss of value. While the depreciation deduction can be valuable when you combine it with the other expenses you incur in the business use of your car, you might find it both more valuable and easier to claim the standard mileage rate instead.

Depeciable Cars

For a car to be depreciated, it has to be used for business or trade purposes other than commuting. While you don't need to use it exclusively for business, you will only be able to depreciate it to the extent that you use it for business. If it's used for business less than half of the time, your depreciation deduction will be limited further.

Calculating Depreciation

While most assets are depreciated over a set period of time, with depreciation amounts tied directly to what they cost, car depreciation is treated differently. Because the IRS looks at an economy car as being functionally equivalent to a luxury car, the agency caps how much depreciation you can claim on a vehicle. For cars put into business use during the 2012 tax year, you can write off up to $11,160 in the first year, $5,100 in the second year, $3,050 in the third year and $1,875 for each additional year until you stop using the car in your business.

Actual Car Expenses

When you claim depreciation for a car, you can also claim all of the other expenses you incur in driving it for business purposes. The IRS' definition of "actual car expenses" includes gas, oil, garage rent, tires, insurance, repairs and maintenance. If you drive the car for both business and personal uses, you will need to keep records to allocate the costs between the two applications, as your personal driving is not deductible.

Standard Mileage Rate

Instead of depreciating your car and tracking all of your actual expenses, the IRS lets you write off a flat rate for every business mile you drive. If you choose to claim the standard mileage rate, you can't claim any other car expenses. However, at 55.5 cents per mile in the 2012 tax year and 56.5 cents per mile in the 2013 tax year, you might find that it gives you similar tax savings with less hassle to use this rate.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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