Depreciation
equivalent for total miles is a small portion of depreciation that is included
(by default) when using standard mileage rate for your business car. When you take standard mileage rate while
deducting your business car miles, you must account for 'depreciation
equivalent' when disposing of that car.
The IRS provides a table with the depreciation
equivalent rate for each year (page 24 of the link, IRS publication 463)
2012 and 2013: rate
is $0.23/mile
2014: rate is
$0.22/mile
2015 and 2016: rate
is $0.24/mile
Example: You drove
1000 miles as business miles in 2014, 2015 and 2016 and took standard mileage
deduction for each year. To calculate your depreciation equivalent - when disposing your car
- you must know how many business miles you drove and the depreciation equivalent rate from the IRS (which I listed above). The calculation is as follows:
2014: 1000 miles
times $0.22 rate = $220
2015 and 2016: 2000
miles times $0.24 rate =$480
Your total
depreciation equivalent (also called total prior depreciation) is $700 (the same amount
applies to AMT). Note: When depreciation
equivalent is added, it changes your cost basis for the car.
