Is it possible to depreciate an old car?

[Kris3]

If an older car, a 2008 Camry is now being used for business starting July 2017, can depreciation be applied or is the car too old? Based on the miles, it is being used for business 80% and 20% personal. Can I still take depreciation or is it too old? If depreciation is possible, what is the cost basis? Is it the amount we paid when it was bought brand new in 2008, or the fair market value when it was placed in service July 2017?

[Coleen3 · Accepted solution]

Yes, you can depreciate it but you can't a section 179. You must also use as your depreciable amount the lower of Fair Market Value of Adjusted Basis on the conversion date.

What Property Qualifies?

To qualify for the section 179 deduction, your property must meet all the following requirements.

• It must be eligible property.
• It must be acquired for business use
• It must have been acquired by purchase.
• It must not be property described later under What Property Does Not Qualify .

Property Acquired for Business Use

To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify

[Kris3]

Thanks a lot TurboTaxColeen, you explained it well.

[excentr]

I have a similar question but different: if you bought a used (15 year old) car in 2018 and took the standard mileage rate but want to change this year to the actual expense method, do you HAVE to claim depreciation and file form 4652 or do you have the option to use the actual expense method and not claim depreciation?

[Hal_Al]

See:

https://turbotax.intuit.com/tax-tips/self-employment-taxes/standard-mileage-vs-actual-expenses-getti...

[excentr]

Thanks, I have already read this article but it doesn't answer my question.

I am trying to figure out if you use the "actual expense method", do you HAVE to claim depreciation and file form 4652 or do you have the option to use the actual expense method and not claim depreciation?

[PatriciaV]

Yes, the Actual Expenses method must include depreciation. The Standard Mileage method automatically includes a depreciation allowance as part of the mileage rate. 

If you choose to start with the standard mileage rate, you can switch back and forth between the methods from year to year. But if you start with actual expenses, you must stay with that method as long as you use the vehicle for business purposes.

@excentr 

[excentr]

If I don't want to claim the depreciation (I've had the car for 4 years and it's 15 years old) do I have to claim it?

[KrisD15]

This is a tricky question because whether you take depreciation or not, when you sell the vehicle, the IRS REQUIRES you to "Recapture" the depreciation you took, 'OR COULD HAVE TAKEN" regardless if you took it or not. 

If you use the Standard Mileage Method, you will not use Form 4562 for depreciation. (as stated earlier, depreciation is built-in the standard mileage rate) 

If you need to figure the depreciation "Equivalent", you need to manually multiply the business miles per year by the "Depreciation equivalent" of each rte. This is only a factor when you sell the vehicle. 

It would be impossible to list the Business vehicle in TurboTax and NOT have the program generate Form 4562 (Depreciation) unless you use Standard Mileage. 

When you use Form 4562 for depreciation the depreciation (as an expense) stops when the life of the asset ends. So depreciation on a vehicle with a 5 year life would stop after the fifth year in service. 

When you use the standard mileage rate, the rate never stops to include the "Depreciation Equivalent". 

If this does not answer your inquiry, perhaps knowing WHY you don't want to claim depreciation would help us better answer you. 

[Mosaic]

Actually the IRS is the best place to get answers to tax questions. You can depreciate an old car IF you just bought it and put it into service the first year you bought it. Otherwise you must use standard mileage deduction. They consider it 5 years depreciation, which means your car was fully depreciated before you put it into use.

My 5 year old car was just purchased, and put to use immediately. Therefore I take the purchase base with taxes and registration, and multiply by percentage used for business. That number is then divided over 6 years, 1/2  a year the first year, half a year the 6th year. If you qualify for both deductions, see which type gives you the better return. 

[Opus 17]

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@Mosaic wrote:

Actually the IRS is the best place to get answers to tax questions. You can depreciate an old car IF you just bought it and put it into service the first year you bought it. Otherwise you must use standard mileage deduction. They consider it 5 years depreciation, which means your car was fully depreciated before you put it into use.

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Sorry, that is not quite correct.  It is not necessary to have recently purchased an asset in order to take depreciation for business use.  If you convert personal property to business use, you start taking depreciation as of the date the asset is placed in service, whether or not it was recently purchased.    However, the basis for depreciation is either your cost basis, or the fair market value on the date the asset was placed into service, whichever is lower.

This general rule applies for any business asset.  However, because cars (specifically, passenger vehicles under 6000 pounds) have 2 different methods to compute expenses, it will usually better to use the standard mileage method if you place an older vehicle in service with your business.