If you use your truck, van, suv or car in your business, you can deduct the costs of operating and maintaining it.
You generally can deduct either your actual expenses or the standard mileage rate (for 2012 the mileage rate for business use is 55 cents per mile). the books and records are inadequate; or the taxpayer withholds his books and records.
Standard Mileage Rate
It is important that if you use your vehicle for both business and personal use, that you track the mileage for each category of use (whether you claim actual expenses or the mileage rate). Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. You can use the standard mileage rate for a vehicle you own or lease. The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. It is announced annually by the IRS. To figure your deduction, multiply your business miles by the standard mileage rate for the year.
Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. However, you may be able to deduct 100% of business-related parking fees and tolls. In addition, you may deduct the business percentage of interest on your vehicle loan, and certain state and local taxes
How to figure the business percentage use: You drove your van 20,000 miles during the year. 16,000 miles were for business and 4,000 miles were for personal use. You can claim only 80% (16,000 / 20,000) of the cost of the business percentage items listed above.
If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. In later years, you can choose to use the standard mileage rate or actual expenses. If you want to use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period.
If you deduct actual expenses, you can deduct the cost of the following items: depreciation or lease payments, rental fees, garage rent, licenses, repairs, gas, oil, tires, interest, insurance, parking fees and tolls.
The depreciation limits outlined in the chart below do not apply to vehicles with a Gross Vehicle Weight Rating (GVWR) of 6,000 lbs. or more.
How can you find out if the vehicle exceeds the 6,000 lb weight test? Take a look at the plate inside the driver-side door jam for (GVWR). If your truck or van exceeds 6,000 lbs in gross vehicle weight rating, the full depreciation deduction is allowed. You can even use the Section 179 expensing election and take up to $100,000 in the first year -- plus the regular depreciation deduction on the remaining balance. More good news if you lease the vehicle -- the lease inclusion tables do not apply if the weight limits are exceeded. So, you can write-off the entire lease costs (at the business use percentage) and not have to reduce your lease payments by the yearly lease inclusion limitation.
Depreciation Limits for luxury car/passenger vehicle with limitations
imposed by the IRS under Code Section 280(f)
|Date Placed In Service||Year 1||Year 2||Year 3||4th and Later Years
|2010 - 2011||$11,060||$4,900||$2,950||$1,775
|2008 - 2009||$10,960||$4,800||$2,850||$1,775
How Much Can You Deduct?
Your section 179 deduction is generally the cost of the qualifying property. However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. These limits apply to each taxpayer, not to each business.
If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 deduction includes only the cash you paid.
The total amount you can elect to deduct under section 179 for most property placed in service in 2011 generally cannot be more than $500,000. If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. You do not have to claim the full $500,000.
Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. The general dollar limit is affected by any of the following situations; the cost of your section 179 property placed in service exceeds $2,000,000, your business is an enterprise zone business, you placed in service a sport utility or certain other vehicles or you are married filing a joint or separate return.
Costs exceeding $2,000,000
If the cost of your qualifying section 179 property placed in service in a year is more than $2,000,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,000,000. If the cost of your section 179 property placed in service during 2011 is $2,500,000 or more, you cannot take a section 179 deduction.
Enterprise Zone Businesses
An increased section 179 deduction is available to enterprise zone businesses for qualified zone property placed in service before January 1, 2012, in an empowerment zone. For more information including the definitions of �enterprise zone business� and �qualified zone property,� see sections 1397A, 1397C, and 1397D of the Internal Revenue Code. The dollar limit on the section 179 deduction is increased by the smaller of: $35,000 or the cost of section 179 property that is also qualified zone property placed in service before January 1, 2012 (including such property placed in service by your spouse, even if you are filing a separate return).
Sport Utility and Certain Other Vehicles
You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. However, the $25,000 limit does not apply to any vehicle:
- Designed to seat more than nine passengers behind the driver's seat,
- Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or
- That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.
If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $800,000. You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you.
Business Income Limit
The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. Any cost not deductible in one year under section 179 because of this limit can be carried to the next year.
Carryover of disallowed deduction
You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. This disallowed deduction amount is shown on line 13 of Form 4562. You use the amount you carry over to determine your section 179 deduction in the next year. Enter that amount on line 10 of your Form 4562 for the next year.
If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. Your selections must be shown in your books and records. For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year. If costs from more than one year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first.