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Old 09-25-2015, 09:43 AM
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Auto Depreciation

Newbie here so bare with me please. I bought my wife a new Lexus GS350 earlier this year when she was not working. Then she decided she was bored and wanted to get a "part time" job which now has her working 30-40 hours a week and running all over southern Mississippi 3-5 days a week. In addition to figuring out what I can claim as "home office" I wanted to know what exactly I can deduct related to car expenses.

First of all, the employer pays (I believe) 35 cents per mile. I understand that if I wanted to deduct mileage, I could deduct the difference between the federal rate and what she is actually reimbursed for. That being said, I have been told that taking depreciation is a much better option. Three questions:

1) Is that so?
2) Can I take depreciation if she is already partly reimbursed for mileage?
3) How exactly do I do that and are there limitations related to vehicle cost, percentage of income, etc?

I read on the IRS website that the IRS essentially penalizes for "luxury" cars. While the Lexus is a luxury car and would not be my first choice as a work vehicle, I didn't really have an option since the car wasn't purchased FOR a work vehicle.



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Old 09-25-2015, 04:50 PM
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Newbie here so bare with me please. I bought my wife a new Lexus GS350 earlier this year when she was not working. Then she decided she was bored and wanted to get a "part time" job which now has her working 30-40 hours a week and running all over southern Mississippi 3-5 days a week. In addition to figuring out what I can claim as "home office" I wanted to know what exactly I can deduct related to car expenses.

First of all, the employer pays (I believe) 35 cents per mile. I understand that if I wanted to deduct mileage, I could deduct the difference between the federal rate and what she is actually reimbursed for. That being said, I have been told that taking depreciation is a much better option. Three questions: ===========>>I guess it depends; aslongas she drives hBasically, you can generally figure the amount of your deductible car expense by using either the standard mileage rate method or the actual expense method. If you qualify to use both methods, you may want to figure your deduction both ways before choosing a method to see which one gives you a LARGER deduction. You cannot use the standard mileage rate if You have used the actual expense tax deduction and claimed the accelerated depreciation deduction in previous years; You have claimed a Section 179 deduction on the vehicle. The standard mileage rate changes every 6 months to a year, so you need to consult the current year’s tax form. The mileage rate may be one number from Jan to Jun and something else from July to Dec. Aslongas you use the standard mileage rate you cannot deductepreciation.Actual auto expenses.You can still deduct business related: Parking fees and tolls.Interest if you have a loan on the car.Applicable registration fees and any taxes. You can switch to using the actual expense method in later years even if you first began using the standard mileage rate. However, you cannot use accelerated depreciation. You will have to use the straight line method of depreciation.If she drives MANY many miles, then std mileage’d be much more beneficial for her; No law mandates that employers give mileages expenses to employees, but many companies opt to do this as a gesture of good will, and because mileage reimbursement is a tax-deductible business expense. In general, employee expenses reimbursed under an employer’s accountable plan are not considered income to the employee for federal income tax purposes. In contrast, employee expenses reimbursed under a non accountable plan are considered income to the employee and are subject to withholding. under non accountable plan, UNLESS ER reimburses you more than your total car expenses, you may itemize the whole amount of your auto expenses on Sch A of 1040 so UNLESS you itemize deductions on your Sch A of 1040, you can not claim your auto expenses; under accountable plan, you may claim only the difference between the reimbursement and your auto expenses on your return.


you CAN use actual expense method, once you used the actual expense calculation when your vehicle was first used for business purposes. You cannot switch to standard mileage rate in later years. If you choose not to, or are unable to use the standard mileage rate, you can deduct the actual expenses associated with your vehicle. For any of actual expenses,i.e, Insurance;Gasoline;Oil; Maintenance or etc

you can only deduct the portion used for business. Say, you drove 10K miles on your vehicle but only 6K were for business. So 60% ,6K divided by 10K. of your expenses were for business. Your actual expenses were $3K. 60% of $3K ,$3K *60% = $1.8K, so you could deduct $1.8K.









1) Is that so?
2) Can I take depreciation if she is already partly reimbursed for mileage? ====>.As mentioned above; no.
3) How exactly do I do that and are there limitations related to vehicle cost, percentage of income, etc? ===>>As mentioned above;plz read above.

I read on the IRS website that the IRS essentially penalizes for "luxury" cars. While the Lexus is a luxury car ========>Plz read below for luxury car concept.
and would not be my first choice as a work vehicle, I didn't really have an option since the car wasn't purchased FOR a work vehicle.========>>No; luxury car DOES NOT mean Mercedes Benz, Ferrari, Lamborghin or Rolls-Royce; but it means, the IRS considers any auto with an unloaded gross weight of 6K pounds or less a luxury vehicle. Tax tax law limits the depre of auto used for biz even those used 100% for biz these limits apply to all types of depr, including sec 179 expenses and bonus depre(as I said your lexus is NOT subject to bonus depre as it was a used one NOT new one).It gives you 2 ways to depreciate a luxury auto used for business purposes. You can take an additional bonus depreciation amount the first year you put the auto in service, not in your case as you did not put the new auto in your biz, but you can still claim sec 179 deduction, or opt out of taking the additional depreciation. In that case, your depreciation deduction is limited to $3,160 in the first year, $5,100 in the second year, $3,050 in the third year and $1,875 for the remaining years. If you want a larger deduction, you can take the additional bonus depreciation deduction.



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Old 09-28-2015, 11:02 AM
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First I appreciate the reply. Second, I'm not sure I completely understand your response so let me try to address a few things. First, I think you implied that you thought I said the car was purchased used. It was not, it was purchased brand new (but I'm leasing it).

With that in mind, does that change anything that you said? I plan to take the standard deduction ONLY if I cannot for some reason take depreciation. In what circumstance(s) would I not be able to take depreciation?

And as a ballpark, I'd say she's easily going to put 20k miles on the car, roughly 70% or more of which is directly related to doing these property appraisals.

Thanks again.



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Old 09-28-2015, 03:24 PM
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Quote:
Originally Posted by shawnmichael View Post
First I appreciate the reply. Second, I'm not sure I completely understand your response so let me try to address a few things. First, I think you implied that you thought I said the car was purchased used. It was not, it was purchased brand new (but I'm leasing it).

With that in mind, does that change anything that you said? I plan to take the standard deduction ONLY if I cannot for some reason take depreciation. In what circumstance(s) would I not be able to take depreciation?

And as a ballpark, I'd say she's easily going to put 20k miles on the car, roughly 70% or more of which is directly related to doing these property appraisals.

Thanks again.
First I appreciate the reply. Second, I'm not sure I completely understand your response so let me try to address a few things. First, I think you implied that you thought I said the car was purchased used.==No I , as you said, knew that it was purchased as brand new,not used.however I did not know that you are leasing it .


It was not, it was purchased brand new (but I'm leasing it). ========You are right; under the tax rule, however, a taxpayer, leasing a car , either uses the std mileage rate or deduct the biz portion of his/her lease payments.To prevent taxpayers from getting around the luxury auto limits ( as said, vehicles having an unloaded gross weight of 6K pounds or less are considered luxury autos) by leasing rather than buying luxury cars, IRS reduces the amt taxpayers can deduct for their lease payments by reducing taxpayers’ car expense deduction by an inclusion amt. the inclusion amt is based on the FMV of the vehicle, then you as a taxpayer, multiply the inclusion amt form the irs table by your biz percentage.

With that in mind, does that change anything that you said? I plan to take the standard deduction ONLY if I cannot for some reason take depreciation. In what circumstance(s) would I not be able to take depreciation?======> If you are leasing an asset, you can deduct your monthly lease costs as an expense. Usually
only the owner of the car can depreciate the car being used for biz purposes. You CAN NOT claim biz use auto depre if you use std mileage method as said previously; the standard mileage rate method may not be combined with most additional vehicle expenses; however, an exception applies to parking fees and tolls. aslongas you incur these expenses and select the std mileage rate to compute your allowable deduction, add the cost of your business-related parking and tolls expense to your total mileage expense.



And as a ballpark, I'd say she's easily going to put 20k miles on the car, roughly 70% or more of which is directly related to doing these property appraisals.=======>>As mentioned above, she can usually write off amounts associated with the business use of the vehicle, 70% or more of which is directly related to doing these property appraisals , regardless of whether she owns or leases the car. In general, only the portion of your leased vehicle that you use for business purposes is tax-deductible. You can choose between deducting your actual expenses, which include your lease payments, auto insurance, fuel, maintenance, repairs, tires and other operating expenses, or taking the standard mileage deduction, which was 57.5 cents / mile for biz miles as of Jan. 1, 2015. You can add parking fees and tolls to either method. Also as said, if you use the actual expenses method the first year you use your leased vehicle for business purposes, you must use that method for the life of the lease. If you use the standard mileage method the first year, you can change between methods during subsequent years.



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Old 09-28-2015, 03:31 PM
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Ok, thanks again. I have one follow up question and then I think I'm done. Is taking the "standard" deduction of 57.5c per mile inclusive of all other expenses, IE insurance? Common sense and the name "standard" would indicate so but I want to make sure. If I take the standard deduction I can not deduct any other business expense related for the car, right?



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