Whole lot of questions about using Actual Expense & depreciation for rideshare (uber/lyft)

[nkerio]

I'm reading the literature for actual expense deductions of a car for rideshare. It's confusing for me. I can't fully grasp the depreciation method with various situations. So I'd like to use an example to make it easier to convey my questions. 

A new car was acquired/leased in 2020 (let's say the value was $30k). A 2020 model.

It was used from the start for rideshare and for personal use as well

For 2020 and 2021 the "standard mileage" deduction was used

It will be purchased/paid off this February (2023). Let's say the amount will be 15K. Taxes were not filed for 2022 yet.

The business/overall usage rate of the car fluctuates significantly through the years. So it's basically less than 50% in 2020-2021. It may be over 50% for 2022, and it's expected to be more than 50% for 2023. 

1. Can the actual expense method be used with depreciation for 2022? Even though IRS instructions say "standard mileage" should be used for whole leasing period, I read that "lease to buy" is treated differently, and by the time of filing for 2022 this car will be "owned".

2. Assuming for 2022 or 2023, the actual expense will be used, how is depreciation calculated, assuming, say 60% business usage?

3. I read about certain allowances (maximum & special depreciation allowance) but could not understand the difference. Can you explain? Assuming the maximum allowance is used, what year does counting start in terms of maximum since it was a lease. Let's assume for 2023, we start with the actual expense, is it 4th year ($5,760 max)? or 1st year of dep. deduction ($18,100 max)?

4. Can the standard mileage still be used in later years, even when the depreciation deduction is exhausted? 

5. How does using it for less than 50% business use for certain years (say 2024 and later) change the calculation for the depreciation? 

Thank you for bearing with me. 

[MarilynG1]

1. With a new vehicle that is used for rideshare, the Standard Mileage Deduction is usually best.  There's very little maintenance cost to report in Actual Expenses and it's easier to track miles driven for business.

2. If your business use is 60% with Actual Expenses, vehicle depreciation would normally be calculated on a straight-line amount over 5 years (life of vehicle asset) and you would get 60%, using FMV at time placed in service.

3. The special depreciation allowances you ask about need to be claimed the first year the asset is 'placed in service'.  Here's detailed info on Depreciation of Business Assets. When you enter your new asset, TurboTax presents your depreciation options to you.

4. The Standard Mileage Deduction includes an amount of Depreciation (about .20/mile of the allowed .50/mile, approximately), so yes, you are continuing to claim depreciation when you continue to claim Standard Mileage. 

5. If Business Use falls to below 50%, you may have to recapture any special deductions you claimed (179, for example) as ordinary income that year, but if using Actual Expenses, you would still get the % of depreciation equal to business use % for that year.  

If you're using TurboTax Desktop, you can play around with the numbers in FORMS mode on the Car & Truck Expenses Worksheet. 

Testing this with a vehicle used 55% for business,  with no lease payments or interest, just actual expenses for gas, oil, repairs, tires, insurance and a FMV of 23K when placed in service, I got $2,530 as a depreciation deduction.  Using 11K business miles out of total miles of 20K, the Standard Mileage Deduction was $6,635 and Actual Expenses was $4,455. 

Here's an article on Business Use of Vehicles you may find helpful. 

[Mike9241]

1. Can the actual expense method be used with depreciation for 2022? Even though IRS instructions say "standard mileage" should be used for whole leasing period, I read that "lease to buy" is treated differently, and by the time of filing for 2022 this car will be "owned".

there are two types of leases for tax purposes an operating lease and a capital lease. if it's an operating lease you don't own it and therefore you can't depreciate it.   if it was a capital lease the entire cost of the vehicle would be eligible for depreciation but because business use was less than 50% the first year section 179 and special depreciation were not available and can not be taken in future years. just because you have the option to purchase at the end of the lease term does not mean it's a capital lease.   since you have been treating it as an operating lease, continue.

since you used the standard mileage method the first year, you can change to actual expenses in any future year but once you do you can not change back to the standard mileage method

2. Assuming for 2022 or 2023, the actual expense will be used, how is depreciation calculated, assuming, say 60% business usage?

there is no depreciation included in your expenses but the lease payments are. 

3. I read about certain allowances (maximum & special depreciation allowance) but could not understand the difference. Can you explain? Assuming the maximum allowance is used, what year does counting start in terms of maximum since it was a lease. Let's assume for 2023, we start with the actual expense, is it 4th year ($5,760 max)? or 1st year of dep. deduction ($18,100 max)?

4. Can the standard mileage still be used in later years, even when the depreciation deduction is exhausted? 

as stated once you use actual expenses you can not switch back

5. How does using it for less than 50% business use for certain years (say 2024 and later) change the calculation for the depreciation? 

there is no depreciation to calculate. in fact, the standard mileage rate does include an amount for depreciation

there would be no effect if in 2024 business use dropped below 50% because you were not eligible to take 179 or bonus depreciation or any depreciation (operating lease)  in prior years.