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byoung2
Level 2

Tax preparer stated that depreciation of a new vehicle is allowed on the first year of direct sales business in 2016, even though I specifically stated I planned to only take standard mileage deduction uction, not auto expenses.

 I had purchased a new vehicle just prior to starting direct sales in 2016.  I specifically stated to Tax preparer for 2016 tax return that I wanted to take standard mileage deduction for the vehicle.  She stated that depreciation of a new vehicle is allowed on the first year and referenced form 4562.  Form 4562 was filed with the return and  line 27 details  "Property used 50% or less in a qualified business use:" were...

Date placed in service: 11/25/2016

Business use % :21.5%. 

Cost or other basis: $30,000. 

Basis for depreciation $6450. 

Recovery period 5 YR. 

Method/convention: MQ 

Depreciation deduction shows the actual 161 miles driven in 2016 

The last column "Elected section 179 cost" is blank

On line 12 "Section 179 expense deduction" the word NONE appears. 

I abandoned my direct sales business as of 12/31/2020 and will now use the vehicle only for personal use.  I have taken the standard mileage deduction each year.  Do I need to account for the "179 deduction"?  If so, or if not, please advise on how to correctly account for the vehicle on the 2020 tax return questions about the vehicle.  Thanks in advance for any help you can give. 

 

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npierson7
Level 1

Tax preparer stated that depreciation of a new vehicle is allowed on the first year of direct sales business in 2016, even though I specifically stated I planned to only take standard mileage deduction uction, not auto expenses.

No, you don't need to amend your pervious years returns. You can take mileage deduction in 2020, as you did in pervious year. Based on your description you didn't take Section 179 depreciation.  If you plan to use your vehicle for personal use only starting this year, your only concern should be the cost basis of your car in case if you decide to sell it. Since you took MACRS depreciation deduction, your cost basis was decreased, and you might be a subject a tax on gain on sale. 

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4 Replies
ColeenD3
Employee Tax Expert

Tax preparer stated that depreciation of a new vehicle is allowed on the first year of direct sales business in 2016, even though I specifically stated I planned to only take standard mileage deduction uction, not auto expenses.

That was a bad move on the preparer's part.

 

Once you use actual expenses for the vehicle (even if it's the first year you used it for business), you can't switch to standard mileage rate. You must continue using actual expenses as long as you use that car for business.

 

She did not use Section 179. She used MACRS mid-quarter convention since you placed the car in service so late in the year. You were not eligible for Section 179 since you used the vehicle for work less than 50%.

 

 

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byoung2
Level 2

Tax preparer stated that depreciation of a new vehicle is allowed on the first year of direct sales business in 2016, even though I specifically stated I planned to only take standard mileage deduction uction, not auto expenses.

Uh oh!  I was afraid of that after reading up on all of the 179 details this year.  

I have not been reporting accurately for every year because I have used standard mileage for 2017-2019, and had planned to do so again for 2020..  Are you able to offer a suggestion on what I should do at this point?  2020 was my 5th and last year in my small direct sales business.  Do I need to amend the previous year returns? I'll appreciate any thoughts/advice/help...

npierson7
Level 1

Tax preparer stated that depreciation of a new vehicle is allowed on the first year of direct sales business in 2016, even though I specifically stated I planned to only take standard mileage deduction uction, not auto expenses.

No, you don't need to amend your pervious years returns. You can take mileage deduction in 2020, as you did in pervious year. Based on your description you didn't take Section 179 depreciation.  If you plan to use your vehicle for personal use only starting this year, your only concern should be the cost basis of your car in case if you decide to sell it. Since you took MACRS depreciation deduction, your cost basis was decreased, and you might be a subject a tax on gain on sale. 

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byoung2
Level 2

Tax preparer stated that depreciation of a new vehicle is allowed on the first year of direct sales business in 2016, even though I specifically stated I planned to only take standard mileage deduction uction, not auto expenses.

Thank you, npierson7, for the reply.   I appreciate your help, and it confirmed what I had gleaned from my research.

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