Car for W2 job and Car for Rental Property (Passive Income)

[Anonymous]

Hello, Dear Community - I hope you are doing well.

I use a car a lot for work and to rent out the property (which is in another city, and I have to drive there to check on it occasionally).

Questions:

1) I learned that $ car use is deducted when used for business. Can it be deducted for use for my W2 job? If this is not allowed - in what instances can I deduct car business use and can I deduct both annual car expenses and depreciation of the car and how?

2) Schedule E (rental property) has a line item for car use. Understood, I can deduct car expenses to run investment property (passive activity) for a particular year. Also, the car can be depreciated (as understood), and what do I need to do if I had not started depreciating it years ago when I first acquired and rented out the property? Is there anything else I might be missing here?

I am trying to understand how I can deduct the business use of my car if it is used for work and investment property (passive income). I think in TurboTax - I see two places where I can put my car expenses - one in the "Rental Property" section (Schedule E) and one in the "Car Deductions" section for Schedule C. A bit confused.

[xmasbaby0]

Forget about using anything car-related for your W-2 job on your federal return.

W-2 employees cannot deduct job-related expenses on a federal return.  Job-related expenses were eliminated as a federal deduction for W-2 employees by the tax laws that changed for 2018 and beyond. 

You may be able to enter mileage etc on the Schedule E for the rental property you have to visit.

[Anonymous]

Thank you. Do I understand right that the car can be depreciated (as understood) for Schedule E, and what do I need to do if I had not started depreciating it years ago when I first acquired and rented out the property? Is there anything else I might be missing here?

[xmasbaby0]

@Mike9241      @Carl ?

Your thoughts on this one would be helpful.

[LeticiaF1]

As xmasbaby0 mentioned, there is no vehicle deduction for the use of your vehicle for your W2 employment.  For your rental, you can have vehicle expenses.  

For business use of vehicles, you have two options , you can use your actual expenses or use the mileage rate. Which one to use depends on the vehicle you have:

• Standard mileage rate is best for vehicles that are more economical to operate.  For this method you will simply multiple your business mileage times whatever the mileage rate was for the year you are looking at.  The mileage rate for 2023 is 65.5 cents per mile, but it is different every year.  You can calculate what your vehicle deduction would be for each year and see if it is worth it to file an amended return.  If you did not have that many miles it may not be worth the cost and time to amend. Amending to claim the mileage rate, you can go back 3 years and file amended returns.  See the link at the end on how to do it.
• Actual cost is recommended for vehicles with more operating costs like, gas, repairs, tires. If you decide to use the actual cost, you would have to go back and still figure out your business mileage, and your total mileage for each year.  You are only going to be able to deduct the percentage of business use for your vehicle.  You will need have to find all of your vehicle expenses for that year and have to figure out your depreciation.  Amending to claim the actual expense and depreciation you can also go back 3 years or you can change your accounting method.  
  • Adopting a change in accounting method, allows you to go back as far as you need. Adjust your current year's tax return to expense the missing depreciation. Not claiming depreciation in two or more years indicates that you've chosen an accounting method without depreciation. In this case, you must now elect to change your accounting method to include depreciation.  For more details and to find out how to change your accounting method, click here.  

 Actual cost includes the depreciation, standard mileage does not.  Vehicles also have a 5 year recovery period with depreciation, and I do not know how long you have had your rentals.  

Business Use of Vehicles

How to File an Amended Tax Return with the IRS

@Anonymous 

[Carl]

For starters, all W-2 job related expenses, to include vehicle use, are not deductible.

For the rental, even if you claim vehicle use, you'll find the record keeping requirements alone to not be worth any savings - if there's actually any savings at all. Most likely, vehicle use on the SCH E won't make one penny of difference on your taxes.
Since the vehicle is not 100% business use for your rentals, you'll need to take the "per mile" deduction. That is, unless you can prove the expenses you claim are 100% rental use. While I won't say that's not possible, I will say you'll have a difficult time doing that - especially if ever audited on it.

With the per-mile deduction you enter your vehicle information in the vehicle expenses section. The program (not you) will figure your deductible expenses, including depreciation. Note that for 2023 the per-mile deduction is 65.5 cents per business mile driven. Of that, 28 cents per mile is depreciation.

Now I've got three rentals of my own, and I did the math many years ago and found that claiming mileage was a complete waste of time, as it didn't make one penny of difference to my tax liability.
However, when you sell the vehicle, you are required to recapture all depreciation taken and pay taxes on it. Now realistically, even after recapturing depreciation on the vehicle, more than likely you're still going to show a loss on the sale. So in the end, it's all a wash and really not worth the time, effort and record keeping.