1257921
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Announcements
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

I'm an independent contractor and bought a car for business use for better gas mileage. Can I deduct the purchase price on my taxes? And if so how much of the purchase price do I get back?

 
x
Do you have an Intuit account?

Do you have an Intuit account?

You'll need to sign in or create an account to connect with an expert.

2 Replies

I'm an independent contractor and bought a car for business use for better gas mileage. Can I deduct the purchase price on my taxes? And if so how much of the purchase price do I get back?

If used 100% for business, then what happens is you list the vehicle as an asset and you depreciate it over either 5 or 7 years. It's a more complicated formula than simply deduction 1/5 the price every year but that's the general idea.  You may be eligible for section 179 depreciation which allows you to deduct all the cost in the first year.  turbotax will do this for you if eligible.  However, it's not a deduction, it's still depreciation.

 

The reason that "depreciation, not a deduction" is important is that depreciation lowers your cost basis.  And if you then sell the vehicle, or stop using it for business, you may have a taxable event called depreciation recapture.  For example, suppose the car cost $30,000 and you use it in business for 4 years.  The depreciated value at that time is (let's assume) $5,000.  You sell the vehicle for $8,000.  You have $3,000 of taxable income because you sold the vehicle for more than it's depreciated cost basis.  Or, you wreck it and the insurance pays $8,000.  Or you go out of business and convert the car to personal use.  If the fair market value is $8,000 and your basis is $5,000, you have a taxable gain of $3,000. If you take section 179, your basis is zero, so if you converted the vehicle to personal use tomorrow, you would have about $27,000 of taxable income -- because you have to repay the depreciation deduction since you used the car for business for less than the time you depreciated it.

 

Also, if you take either standard or section 179 depreciation, you can't use the standard mileage method to deduct car expenses, you can only use the exact expense method, where you keep track of all vehicle expenses for the year.

 

If the vehicle is used for personal use for 1-50% (still more than 50% business use) then you take depreciation on a percentage basis, or you could use the standard mileage method.  If used less than 50% business, I think section 179 is not allowed but regular depreciation is still allowed.

 

The most important point is that if you take any form of depreciation, you can never use the standard mileage rate method for your other expenses, since the standard rate includes a credit for depreciation.

 

Turbotax can do this for you once you tell it to add the vehicle as an asset to your business.

 

You can also read chapter 4 here https://www.irs.gov/forms-pubs/about-publication-463

DavidD66
Expert Alumni

I'm an independent contractor and bought a car for business use for better gas mileage. Can I deduct the purchase price on my taxes? And if so how much of the purchase price do I get back?

There are deductions for the use of personal vehicle for business or the purchase of a business vehicle.  The specific vary based on details of your situation.  Here is a link to an Investopedia website that is helpful for navigating IRS Publication 463:

 

About IRS Publication 463: Travel, Entertainment, Gift, and Car Expenses

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

Unlock tailored help options in your account.

message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question