The cost basis for the Challenger that was totaled is as follows:
- Purchase price x business uses percentage of the vehicle. The business use percentage takes into account all miles for the life of the vehicle divided by business miles used for the life of the vehicle.
- Depreciation for 2022, is calculated based on the standard mileage rate of .26 per business mile ($1,016). Depreciation using actual cost is not allowed for an asset that is placed in service and removed from service in the same year.
- Selling price for the business use percentage is calculated the same as step 1 above.
The new Dodge Challenger is added as a new asset under Vehicles and has no connection with the old one. Figure out the business and personal miles on the vehicle during 2022 to arrive at your business costs. If you do not choose to use the standard mileage rate in this first year you will never be allowed to use it for this vehicle during your ownership. If you do choose the standard mileage rate the first year, you can switch between actual expenses and the standard mileage rate as you choose each year.
The depreciation method in the future will require the alternative depreciation system (ADS), if you do choose the standard mileage rate the first year. That simply means a 5 year recovery using the straight line method versus the general depreciation system (GDS) which is an accelerated method.
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