How to Depreciate a Vehicle for Business

by Kay Lee ; Updated July 27, 2017
You may recover the cost of a business vehicle over a period of years.

Items you will need

  • Business vehicle
  • Internal Revenue Service Form 4562

Depreciation is a tax concept that provides taxpayers the ability to take a deduction for the depreciation of property utilized for business purposes, which means that taxpayers can recover the cost or other basis of the property during the period of time in which that property is being used for business purposes. Property must meet four requirements to be a depreciable asset: it must be owned; it must be used in business; it must have a useful life that can be determined; and the property must have utility for longer than a year. There are different methods of depreciation and the method used will depend on the asset that will be depreciated. Generally, vehicles will be depreciated with the Modified Accelerated Cost Recovery System (MACRS) for cars that were placed into business service after 1986.

Step 1

Fill out Form 4562 to attach to your tax return.

Step 2

Determine the depreciation deduction for your vehicle by filling out Part III, MACRS Depreciation. To determine the amount, you will follow instructions for Line 19, Column (g) if the vehicle was placed into service during that tax year or Part V if put into service in a prior year.

Step 3

Enter the date the vehicle was placed into business service in Column (b) of Part V.

Step 4

Determine and enter the percentage that the vehicle is used for business use in Column (c) of Part V.

Step 5

Determine the basis of your vehicle. Your basis is the amount it cost to purchase the vehicle plus sales tax, and other fees at the time of sale as well as improvements, if any. If you financed the purchase of the vehicle, your basis will be the amounts you paid in cash plus the financed amounts. Enter your cost basis in Column (d) of Part V.

Step 6

Multiply the amount in Column (d) to the percentage in Column (c) to determine the basis for depreciation.

Step 7

Determine the recovery period based on the chart in the instructions for Line 19, Column (d). Enter the recovery period in Column (f) of Part V.

Step 8

Enter the method/convention of depreciation used to figure the deduction. The instructions for Part V, Line 19, columns (e) and (f) explain your available options for entry.

Step 9

Figure the deduction amount in Column (h) by following the instructions for Line 19, Column (g) if the vehicle was placed into service after 1986 and is used more than 50 percent for business, but be sure it does not exceed the limit if your business vehicle is a passenger automobile.

Step 10

Enter the depreciation deduction on Section A, Line 17.

Tips

  • If you had a vehicle that was initially used for personal use and you later used it for business, your basis will not equal the purchase price. You are to use the lesser of the fair market value of the vehicle on the date that you began using it for business or the original purchase price adjusted by increasing the costs for improvements and decreasing the cost for any deductions claimed for casualty and theft losses or other basis reductions.

Warnings

  • You may not use the MACRS system of depreciation for the vehicle if you or your family owned the property in 1986 or you have leased the property from a person who owned the property in 1986.

About the Author

Kay Lee began freelance writing for Answerbag and eHow in 2010. She is an attorney in Washington, DC, practicing since 2006. Lee specializes in employee benefits and executive compensation. She holds a Juris Doctor from the Columbus School of Law and a Master of Laws from Georgetown University Law Center.

Photo Credits

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