Car: standard vs actual expense

[lameri]

Hello,

It seems that when the standard mileage rate is used, the depreciation shown in the "Depreciation and Amortization Report" is zero, since the depreciation is embedded in the deduction.

What happens when a car (used 10-30% for business, depending on the year)  is normally reported using the standard mileage but one year it is better to use the actual expenses, meaning, what cost basis is used? Is it the Blue Book value?

Other questions when using the actual expense method:

- Since the actual expenses method prorates by usage (business vs total), does that mean that the expenses can be for personal use (like parking)?

- Where do parking and smog go in Schedule A?

Thank you!

[tagteam]

Re depreciation, see https://www.irs.gov/publications/p463#en_US_2022_publink100033990

Note that you cannot deduct any expenses paid for personal use on Schedule A.

Further note that your basis for depreciation would generally be the lesser of your adjusted basis or fair market value on the date of conversion to business use.

[lameri]

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Further note that your basis for depreciation would generally be the lesser of your adjusted basis or fair market value on the date of conversion to business use.

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OK, so for example:

Purchase info:

• date: 2010
• price: $30K

In service:

• date: 2020

What would be the adjusted basis, 30K - 10y*30K/27.5y?

Another question: Is the vehicle actual expense useful if one is going with the standard deduction? I thought the schedule A stuff matters only if itemizing (not going with the standard deduction), but for some reason my TurboTax keeps the "actual expense deduction" (which indeed is higher than the "standard mileage deduction").

Thanks!

[Opus 17]

When you place property in service, the basis for depreciation is your cost, or the current fair market value, whichever is less.  There is no adjustment for depreciation you could have taken but didn't.  For your depreciation basis when you started using the car for business in 2020, simply look at the 2020 blue book value of a 10 year old car of that make, model and mileage.

Also note that, if you placed the car in service in 2020, you can only choose between the actual expense method and the mileage method in future years (2021, 2022, 2023, etc) if you used the standard mileage method in 2020.  Then, if you want to use the actual expense method in 2022 or 2023, you must make an additional adjustment to the depreciation based on your mileage in 2020 and 2021.  This is described in publication 463.  I don't know if Turbotax is clever enough to do this for you.  

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

Since your basis will likely be very low, and spread out over 5 years (and you will only claim 20% of that if used 20% for business), it is probable that your business expense deduction will be larger by using the standard mileage method than the actual expense method.  However, only you can tell that.  

Lastly, if and when you sell the vehicle, you may have to pay depreciation recovery on depreciation you claimed (using the actual expense method or as included in the standard mileage method).  That is also covered in publication 463.

Car expenses can't be deducted as personal deductions on schedule A for tax years 2018-2025.  You can deduct business use of a vehicle if you are filing a schedule C, as a business expense.  If you are a W-2 employee, you can't deduct business expenses on schedule A using form 2106 (this was eliminated for 2018-2025).  And you can never deduct personal car expenses.