@Bryan46 wrote:
Hi,
Thanks for your response. To be clear, why you cannot take car depreciation and take mileage deduction? Is there any publication explain this? Just out of curiosity.
Thank you,
Business use of a vehicle is explained in chapter 4 of IRS publication 463.
https://www.irs.gov/forms-pubs/about-publication-463
Basically, the IRS standard mileage rate makes allowance for all vehicle expenses, including fuel, maintenance, repairs, insurance and depreciation. You can't take the standard mileage rate and also depreciation, because you would be taking depreciation twice.
If you use the actual expense method, you must track all your vehicle expenses for the year and claim the percentage of total expenses equal to the percentage of business miles you drive in a year. Because the actual expense method allows you to deduct depreciation and interest on a car loan (but not the principal part of the payment), the actual expense method may be more lucrative if you drive a newer, more expensive car. For most people, the standard mileage rate is better. In addition to being less paperwork, you get extra depreciation if you drive a car that is more than 5 years old. After 5 years a car is fully depreciated and you can't claim depreciation as an expense if you use the actual expense method. But if you use the standard mileage method, you can continue to claim the full IRS rate, even though it contains a depreciation allowance that you would not normally be entitled to. You basically get to deduct more deprecation than the car's actual cost if you drive it long enough using the standard mileage rate.
Also, if you ever want to use the standard mileage rate for a particular vehicle, you must use it the first year you place the car in service in your business. In following years you can use either the standard mileage rate or the actual expense method. If you use the actual expense method in the first year, you must always use the actual expense method for that car.
