business vehicle reaching depreciable value limit

[mrfixit1888]

I have a vehicle we purchased for our S-Corp back in 2016. We took the initial special deduction and depreciation over the 5 years, however there is still a $20,000+ basis left on the vehicle. Can I continue to depreciate it? TT won't let me do that. Can I convert it to personal use and start deducting mileage for business use? What's the best way to deal with this. We plan to keep the vehicle for at least 5 more years.

[GeorgeM777]

Not sure why you still have a basis left to depreciate if you have been depreciating the vehicle since 2016.  Vehicles depreciate over a five-year period, and thus, you should have already recovered your vehicle cost.  TurboTax may be operating under the assumption that you have already recovered the cost of your business vehicle and there is nothing left to depreciate.

Yes, you can deduct all costs, except depreciation, associated with the business use of your vehicle.  If you use the vehicle for personal, non business use, then keep separate records for each specific use.  You need to track your business miles, but you also need to track personal miles as well because the vehicle is mixed use.  

@mrfixit1888 

[mrfixit1888]

Thank you GeorgeM777.

I'm not sure why either. We were using a "national brand" accounting firm for our taxes up until last year and this is what they had done. I thought there might have been limits on how much we can depreciate each year. Would it be better to convert it to a personal vehicle and use it for business purposes, taking mileage deductions, or keep it under the business and continue to deduct expenses?

[GeorgeM777 · Accepted solution]

You might consider reviewing your prior tax returns beginning with the year you began to depreciate the vehicle and determine how much depreciation was taken each year.  If the depreciation amount was too low, then you might consider filing amended returns for those years when depreciation should have been greater than what was reported.  You can go back three years when filing amended returns.  

You mentioned there was a special deduction taken and that could have been accelerated depreciation, meaning you were able to take more depreciation in prior years which was designed to assist business owners in quickly recovering their business costs rather than recovering those costs using straight line depreciation. 

The decision is yours whether to convert the vehicle to mixed use or keep it solely as a business vehicle.  If you have already recovered its cost, you cannot take any more depreciation.  If you use the standard mileage rate going forward, you cannot deduct other costs associated with your car, including gas, repairs/maintenance, insurance, depreciation (which you may have already recovered), license fees, tires, car washes, lease payments, towing charges, auto club dues, etc.  The standard mileage rate includes all of these expenses.  However, the standard mileage rate does not include parking fees and tolls, therefore, you can still deduct those fees if you take the standard mileage deduction.  

After your vehicle has been fully depreciated, and rather than taking the standard mileage rate, you can deduct actual expenses (Note: you cannot take the standard mileage rate and actual expenses, just one or the other).  Actual expenses includes all expenses, except depreciation. Those actual expenses include licenses, lease payments, registration fees, gas, insurance, repairs, oil, garage rent, tires, tolls, and parking fees.  

@mrfixit1888