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Section 179 and beyond!

Hi there! I’m wondering about the years after you purchase a vehicle for business. For example, say I buy a vehicle this year for 25,000$, I use 179 and bonus depreciation to deduct the full cost for my taxes this year. Next year, would I file my vehicle related business expenses as the regular standard mileage rate vs actual expenses? Thanks in advance!

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Section 179 and beyond!

If Section 179 or Bonus depreciation is used standard mileage rates cannot be used for any periods after the year deprecation is taken and actual auto expenses (fuel, tires, repairs, etc.) must be tracked going forward.

Section 179 and beyond!

If you start with the ACTUAL expenses  the first year you place a vehicle in service you are stuck with the actual expenses until you take it out of service.

 

If you start with the standard mileage rate the first year you place a vehicle in service then you can flip flop in the following years but you can never take the 179 deduction or bonus depreciation later ... only the standard depreciation. 

 

So you need to think carefully before making a choice as it will affect the future tax years. 

Section 179 and beyond!

The standard mileage rate includes depreciation (about 25 cents of the 59 cents is for depreciation).  So you can never use the standard mileage rate and claim depreciation on the same vehicle.   If you take section 179, then you can also deduct actual expenses (fuel, repairs, insurance--but NOT depreciation).  Deducting actual expenses requires more effort and record keeping on your part.  See chapter 4 of publication 463,

https://www.irs.gov/forms-pubs/about-publication-463

 

Depending on your expected use, the vehicle cost, and how long you plan to keep the car, the standard rate can give you a bigger long term deduction, because you can keep claiming the standard rate (which includes depreciation) long after the vehicle is fully depreciated.

 

Example: Joe buys a used car for $2500 to use for ride share and delivery.  He drives 10000 miles per year and claims the standard mileage rate.   At the end of the first year, the car is fully depreciated (25 cents per mile x 10,000 miles = $2500), but if Joe keeps driving the same car, he will continue to claim a deduction for depreciation even though the car is fully depreciated.  This is perfectly legal and does not require any tax adjustments or payback.

 

On the other hand, if you prefer to change vehicles frequently and you buy expensive new vehicles, you may want to depreciate and then use the actual expense method for other expenses. There's no right answer for everyone. 

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