NASE Blogs

Deductible Use of Business Vehicle

Tuesday, February 09, 2010

Q: I purchased a new truck for my business in May 2009.  It is an asset, and I am wondering how much of the purchase price I can deduct from my income this year. Do I depreciate it?  Do I get to deduct any mileage for business expenses or is it limited to depreciation only?


A: The business use of your vehicle would be a deductible expense to the extent that it is indeed used for business. As you might have guessed, the personal usage of your car, including commute mileage, would not be deductible.

There are two basic methods for determining the amount of the deduction, the actual expense method and the standard mileage rate. As you probably know, under the actual expense method, total expenses related to the operation of the vehicle are accumulated. These expenses include gas, oil, insurance, repair and maintenance, depreciation, registration fee, lease payment, etc. The depreciation of the vehicle will be based on your cost basis in the vehicle. This is generally your actual cost in the vehicle less any depreciation that you have previously taken on the vehicle. There is no limit as to how much the lease payment can be, but there is a unique calculation that must be made called an inclusion amount. This amount is based on the value of the vehicle and in effect reduces the amount of the total costs that you can include. The IRS has a very good publication to help you with this information, called Publication 463, Travel, Entertainment, Gift, and Car Expenses.

The total expenses are then multiplied by the total business percentage of total miles driven. The number of miles is typically substantiated by the maintenance of a detailed mileage log of all miles driven during the tax year. The result is the total deductible expense for the business use of the vehicle. Personal usage of the vehicle is never deductible so if you do use the leased vehicle during the weekend, that will reduce the total amount of the deduction since the percentage of business use will be less than 100%.

The second method is called the standard mileage rate method and is the most common and the easiest. Under this method you are not required to keep receipts for the actual cost of operating the vehicle, and the amount of the deduction would not be different whether the car was owned or leased. The total business miles driven, as determined by the log noted above is multiplied by the standard rate allowed by the IRS, 55 cents for 2009. This amount includes a factor for all expenses related to the car including the costs of a leased vehicle.

If the vehicle weighs more than 6000 pounds then you may be able to accelerate some of the expense in the year in which you acquire the new business vehicle. Check out IRS Publication 946, How to Depreciate Property for more detail


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