How to depreciate a car used more than 50% for business?
You purchased a car in 2020 for $20,000 on 2-2-2020 and used at 60% in your business, 10% for investment, and 30% for personal use. You have a written record of your mileage.
You choose not to claim a Section 179 deduction and elect not to take any special depreciation.
What is the depreciation deduction for the car to claim on 2020 tax return?
A car is 5-year property class life.
Step1: Complete depreciation spreadsheet with the car information.
If the car is the only asset placed in service in 2020, since it is not placed in service in the last quarter of the year, you would not use mid-quarter convention.
Step 2: Since the car was placed in service in February, you would use half-year convention.
Step 3: Look for the Appendix A at the end of Publication 946 (2019) or the latest version to find the name of the depreciation rate table to use.
Based on Appendix A on page 69 Publication 946 (2019), The rate table for half-year convention for 5-year property class life at 200% declining balance under GDS is A-1.
Step 4: Look for table A-1
Step 5: Copy the rates under 5 years column to your depreciation spreadsheet
Publication 946(2019) page 60 has the maximum depreciation you could claim on your vehicle.
If you elect not to claim section 179 and special depreciation, the maximum to deduct for your passenger vehicle is $10,100 the first year; $16,100 year 2; $9,700 in years 3; $5,760 in year 4 and later years multiplied by the total percentage use for both business and investment. You calculate your depreciation deduction and compare the maximum deduction. Your deduction is the lesser of the 2.
If your business and investment use change every year, you must update the percentage of the maximum deduction for the year before you compare your deduction to it to determine which one is the least amount.
The video explains hot to depreciate a passenger vehicle you placed in service in your business in 2020.
2020 Federal Tax Forms and Instructions
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Depreciation Spreadsheet-DS22821
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