Depreciating a vehicle used for business is an important tax benefit that allows you to deduct the asset's cost over its useful life.
Step 1: Determine the Vehicle’s Eligibility for Depreciation
To depreciate a vehicle, it must meet the following requirements:
Business Use: The vehicle must be used more than 50% for business purposes.
Taxpayer Ownership: It must be owned by the taxpayer and not a leased vehicle.
Applicable Useful Life: The IRS establishes that vehicles have a 5-year useful life under the MACRS (Modified Accelerated Cost Recovery System).
Step 2: Complete Form 4562
I. Section 179 (Optional Immediate Deduction)
If you want to deduct a significant portion of the vehicle's cost in the first year, you can apply Section 179.
Note: If the vehicle is not used more than 50% for business, you cannot claim Section 179.
II. Bonus Depreciation
If the vehicle is eligible, you can apply a 100% first-year deduction under Bonus Depreciation.
Enter the eligible amount for Bonus Depreciation.
This applies to both new and used vehicles (purchased after September 2017).
III. General Depreciation under MACRS
If you did not apply Section 179 or Bonus Depreciation, you must use MACRS:
Check the box for the applicable depreciation method.
Most vehicles follow the 200% Declining Balance (DB) method with a 5-year useful life.
Enter the vehicle’s depreciable cost.
Calculate the first-year depreciation.
Example of MACRS Table (200% DB, 5 years, more than 50% business use):
Year 1: 20.00% of the cost
Year 2: 32.00%
Year 3: 19.20%
Year 4: 11.52%
Year 5: 11.52%
Year 6: 5.76%
Conclusion
Depreciating a work vehicle is a key strategy to reduce your business tax burden. Whether you use Section 179, Bonus Depreciation, or MACRS, the best choice depends on your tax situation and financial goals. Always keep detailed records and stay updated on IRS regulations to maximize your tax benefits.
At Professional Taxes LLC, we are ready to help you reach your financial goals. Let us know when you’re ready to take full advantage of the deductions available for your business. Contact us! 480-343-0299
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