2023 UPDATE: Vehicle Depreciation Limits for 2023: 1st year - $20,200 (w/Special/Bonus Depreciation); $12,200 (w/o Special Depreciation); 2nd year - $19,500; 3rd year - $11,700; 4th and subsequent years - $6,960.

Thank you for providing such a clear breakdown to get an idea what hides behind the MACRS!! It's very helpful to see the bigger picture

@TheTaxGeek

3 ай бұрын

I'm glad it was helpful!

I've been searching and watching videos on depreciation and this one is the best I've found :)

@TheTaxGeek

Жыл бұрын

Glad it was helpful!

@dnell6854

Жыл бұрын

Can you depreciate vehicles at any time that you currently own even if you’ve never depreciated the vehicles before?Ive owned the vehicles for several years but I have never depreciated them on my tax returns.

Great videos! keep em coming!

Thank you so much for the video absolutely one of the best explained videos very informative and it is so great that you showed us the example using the form many people just tell you but never us The forum if possible can you do a video showing selling the car in the middle of the year and getting a new car for business and with that looks like on the

@TheTaxGeek

5 ай бұрын

Thanks for your kind words. A video on what happens when you "trade in" a vehicle is a great idea, and should be forthcoming.

Great information 😊

That is a very clear explanation. Thank you for the video. I'm deciding whether to report my vehicle depreciation and enjoy the tax benefits now vs. if I sell this car in the next year or two and how that would impact my tax liability. Can you explain what happens if you sell/trade in a vehicle before the 5-year MACRS schedule has expired?

@TheTaxGeek

3 ай бұрын

If you're using a vehicle for business purposes, and not taking the Standard Mileage Rate, you must depreciate the vehicle. When selling the vehicle, the depreciation needs to be accounted for in determine gain or loss on the sale. If you sell the vehicle before all the depreciation has been taken, the depreciation is limited to what you took when you owned the vehicle. Here's a broad, very oversimplified example. You purchased a vehicle (100% business use) for $20,000. Using straight line depreciation (again for simplicity's sake) the depreciation would be $2,500 in the first year, $5,000 in the next four years, and $2,500 in the final year. If you sold the vehicle in year 3, you treat year 3 as the final year and claim depreciation as follows $2,500 in year 1, $5,000 in year 2, and $2,500 in year 3 for a total of $10,000. If you sold the vehicle for $15,000, your gain would be $15,000 minus the vehicle's basis, which is $20,000 less the depreciation you took, or could have taken, which is $10,000, leaving a basis of $10,000. $15,000 minus $10,000 gives you a $5,000 taxable gain. If you didn't take the depreciation, the answer is the same.

Love your videos! Another question: A small business owner who purchased a new vehicle (90% work usage) is using special depreciation. Do they need to fill out lines 25 AND 26 on form 4562? Or just line 25, and omit the car details on line 26?

@TheTaxGeek

Жыл бұрын

In the first year of ownership, you claim Special Depreciation for the vehicle on line 25 and put the information on the vehicle in part B. For the second year of ownership, where you'd be claiming regular MACRS depreciation on the remaining depreciable basis, you claim the expenses on line 26. You would also claim the expenses on line 26 if you were foregoing Special Depreciation on the vehicle.

Thank you for the excellent breakdown...question, how would you handle depreciation expense for two businesses that use the same car. One use is 70% for business and 20% for the other business. I appreciate your direction...also will check your channel for answers, as well

@TheTaxGeek

5 ай бұрын

It shouldn't be too difficult. 70% of the depreciation (and any associated depreciation limitation) goes to one business, and 20% to the other. Software usually requires you to "split" the asset. That doesn't affect the basis--it just allows you to use one vehicle for two different activities.

Great video, how do you account for the business use percentage changing each year? Do you have a video on this?

@TheTaxGeek

5 ай бұрын

One of the reasons I used the same business percentage each year is that it made describing the process of vehicle depreciation simpler to explain, and, hopefully, easier for the viewers to understand. But yes, showing the process with changing business use would be more realistic and I will made a video on that subject in the near future. Essentially, as the years go by, the calculated MACRS depreciation and the vehicle depreciation limit would have to be multiplied by the business use percentage for that year. This might prolong the recovery period for the vehicle.

@SHINE88

5 ай бұрын

@@TheTaxGeek Thank you. I will keep an eye out for the video.

Thank you for this great video, depreciation hurts my head 😅 Questions: Is 179 same as bonus depreciation? If the standard mileage deduction includes depreciation, does that mean the amount for standard mileage deduction amount is used as the depreciation expense amount?

@TheTaxGeek

Жыл бұрын

Section 179 is not the same as bonus (or "special depreciation). I have a video describing the Section 179 deduction and comparing it to special depreciation, which you can watch by clicking here: kzread.info/dash/bejne/iaKWlq5rhcupnKQ.html I also have a playlist on the channel called "Depreciation 101" which is linked to in that video.

If I bought new or near new I'd buy something with lower depreciation. And that information is easy to find. I usually buy vehicle's that have already depreciated out most of their value because I can. And then I use them for basic transportation and then try to sell them based on what I've got in it minus what I was able to get out of it by just driving it. If you buy something and are upside down the only way you can get your money out of it is to keep it and drive it. I don't like to lose much money and that's the reason I get to a point and say the buck stops here. A couple years ago I wanted to ask a banker for a formula but I found this kind of information is readily available online.

Car depreciation also use both Mid Year and Mid Quater timing? The day the car is put to service. Gees so complicated, thank you.

@TheTaxGeek

Ай бұрын

Mid-quarter depreciation is used when 40% of the value of assets are placed into service are placed in service curing the last three months of the year. It can apply to automobiles, just like most other assets. When mid-quarter convention is required, all assets with the recovery period of the assets placed in service late in the year must use the convention. Yes, it is confusing, but a video will be forthcoming.

Vehicle basis stay the same every year? If I pay 16k for my vehicle back in 2018 and it's just used for business, do I put 16K under vehicle basis? Using H&R for my taxes

@TheTaxGeek

Жыл бұрын

If you purchased the vehicle in 2018 and placed it into service in 2018 and did not take special depreciation in the year you purchased it, the 16K basis remains the same for the entire recovery period of the vehicle. If you took special depreciation in the first year, the special depreciation is subtracted from the year one basis to arrive at the basis for the remaining years of the recovery period.

i purchased most of my cars from a dealer. Do i include all additional dealer expenses such as tax tag title fees taxes etc in the basis cost? Or do I only use the price of the car before all other expenses?

@TheTaxGeek

Жыл бұрын

Yes, all the costs of acquisition are included in the basis of the vehicle.

@andrewsnyder9262

Жыл бұрын

@@TheTaxGeek thank you so much. You are more help than the tax cpa i paid $1000 for. He put mileage for my fleet larger than 5 cars. My understanding is that you have to use actual expense method for fleets over 5 cars. I'm afraid he made a mistake and has delayed my taxes as a result. Do you know if you can use mileage for the first 5 and then actual for the rest of the fleet? Your help is greatly appreciated as I have been scrambling trying to figure this out.

@TheTaxGeek

Жыл бұрын

No, If you have a fleet of at least five cars, you must use actual expenses for all of them. Of course, it is possible that some of the vehicles might be used for both business and personal use, and the vehicle expenses would be apportioned using the miles driven for each purpose.

A taxpayer acquires a $30,000 passenger car in 2018 for use in their trade or business. The car is bonus eligible and the taxpayer does not elect out of bonus depreciation. The applicable convention is half-year and the automobile is used 80% for business. What is the 2018 depreciation deduction?

@TheTaxGeek

Ай бұрын

It would be the bonus depreciation limit for 2018 of $18,000 x .80, or $14,400

If the car was used for rent to customers (100% business use), not by owner or employee. Are the rules the same as for listed property, and the same limits are applicable? Thank you

@TheTaxGeek

11 ай бұрын

The limits would still apply. The reason automobiles are considered listed property is that they have the potential for being used personally, whether or not they are.

@nadname5291

11 ай бұрын

@@TheTaxGeek , thank you

Hello. Do i have to depreciate my business equipment or I can choose not to? Thank you.

@TheTaxGeek

Жыл бұрын

For all practical purposes, you cannot choose not to claim depreciation on a long-lived business asset. When the asset is disposed of, you have to recapture any depreciation "allowed or allowable" whether or not you chose to take it. This an result in a gain on the sale of the asset where there truly isn't one.

@Godsolovedtheworld539

Жыл бұрын

@@TheTaxGeek thank you for your reply. What if I reported a purchase of the machine, let's say 20k, as a business expense (odfice equipment) on my taxes. I can't depreciate is any more, correct?

@TheTaxGeek

Жыл бұрын

Yes

@Godsolovedtheworld539

Жыл бұрын

@@TheTaxGeek let's say I report the purchased equipment as a business expense. Do I still depreciate it?

@sharkktongue

Жыл бұрын

@@TheTaxGeek Do you still have to recapture if it is fully depreciated and disposed it?

bought my car in 2018 but didn't use it for business till 2020, how would i depreciate this?

@TheTaxGeek

Жыл бұрын

You start depreciating the vehicle as of the date you placed it in service (2020). Your depreciable basis would be either the original cost basis or its Fair Market Value as of the date you placed it in service, whichever is lower. For most vehicles, the depreciable basis would be he FMV.

@jeremiah03101

Жыл бұрын

@@TheTaxGeek how do i determine FMV? thanks for the quick reply by the way

In the example why is his cost not multiplied by 20% i.e. depreciaiton rate?

@TheTaxGeek

10 ай бұрын

Because he took Special Depreciation on the vehicle in the first year. From then on, the depreciation rates are applied against the cost less the special depreciation taken.

@user-nh6lf7md1m

10 ай бұрын

@@TheTaxGeek can i choose to not apply special depreciation. is it optional. Also, if it is, and i choose to not apply special depreciation can i go ahead and apply 20% on cost? (assuming 100% of asset is used for business )

@TheTaxGeek

10 ай бұрын

You certainly can "opt out" of Special Depreciation and claim regular MACRS, if you prefer. If your business is just starting and your anticipating growth, you might want to take the depreciation later when you might need it more.

What if you bought the car in 2018???

@TheTaxGeek

Жыл бұрын

You use the vehicle depreciation limits that were in affect for 2018 for the fifth year of ownership. These figures should be available in IRS Publication 946.

@Lee-zk7sk

Жыл бұрын

@@TheTaxGeek one more thing I’m doing this as we speak why is it when I select my standard mileage amount which is 12k my refund decreases dramatically??

@Lee-zk7sk

Жыл бұрын

I do suppose to get my mileage right I have over 20k business miles

Werent you supposed to find and subtract the first year depreciation based off the table. You didn't it for year 2 but not year 1

@TheTaxGeek

Жыл бұрын

Because we took Special Depreciation in year one. You don't also get to take regular MACRS as well. The depreciable basis from year 2 onward is the original cost basis of the vehicle less the Special Depreciation we took in year one. For assets that aren't vehicles, Special Depreciation reduces the depreciable basis to zero, and no further depreciation is taken.

@romainecrawford2720

Жыл бұрын

@The Tax Geek ok so basically special depreciation was taken for year 1 and the the years after you start off with the 5 years depreciation table?

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