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H&r Block Basic

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H&r Block Basic

H&r block basic IRAs and Other Retirement Plans Table of Contents 2002 ChangesSimplified Employee Pensions (SEPs) 403(b) Plans Later ChangeDeemed IRAs 2002 Changes Simplified Employee Pensions (SEPs) Contribution limit increased. H&r block basic   For plan years beginning after December 31, 2001, the annual limit on the amount of employer contributions to a SEP increases to the lesser of the following amounts. H&r block basic 25% of an eligible employee's compensation. H&r block basic $40,000 (subject to cost-of-living adjustments after 2002). H&r block basic Deduction limit. H&r block basic   For years beginning after 2001, the following changes apply to the SEP deduction limit. H&r block basic Elective deferrals (SARSEPs). H&r block basic   Elective deferrals under a SARSEP are not subject to the deduction limit that applies to employer contributions. H&r block basic Also, elective deferrals are not taken into account when figuring the amount you can deduct for employer contributions that are not elective deferrals. H&r block basic Definition of compensation. H&r block basic    Compensation for figuring the deduction for employer contributions includes elective deferrals under a SARSEP. H&r block basic More information. H&r block basic   For more information about SEPs, see Publication 560, Retirement Plans for Small Business. H&r block basic 403(b) Plans Figuring catch-up contributions. H&r block basic   When figuring allowable catch-up contributions, combine all contributions made by your employer on your behalf to the following plans. H&r block basic Qualified retirement plans. H&r block basic 403(b) plans. H&r block basic Simplified employee pensions (SEP). H&r block basic SIMPLE plans. H&r block basic   The total amount of the catch-up contributions to all plans maintained by your employer cannot exceed the annual limit. H&r block basic For 2002, the limit is $1,000. H&r block basic Rollovers to and from 403(b) plans. H&r block basic   If a distribution includes both pre-tax contributions and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax amounts (contributions and earnings that would be includible in income if no rollover occurred). H&r block basic This means that if you roll over an amount that is at least as much as the pre-tax portion of the distribution, you do not have to include any of the distribution in income. H&r block basic Years of service for church employees and ministers. H&r block basic   If you are a minister or church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer. H&r block basic Prior law required church employees and ministers to figure years of service separately for each employer. H&r block basic   As a minister or church employee, all contributions made to 403(b) plans on your behalf, as an employee of a church or a convention or association of churches, are considered made by one employer. H&r block basic Foreign missionaries. H&r block basic   If you are a foreign missionary, contributions to your 403(b) account will not be treated as exceeding the limit on annual additions if the contributions are not more than the greater of: $3,000, or Your includible compensation. H&r block basic More information. H&r block basic   For more information about 403(b) plans, see Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). H&r block basic Later Change Deemed IRAs For plan years beginning after 2002, a qualified employer plan can provide for voluntary employee contributions to a separate account or annuity that is deemed to be an IRA. H&r block basic For this purpose, a qualified employer plan includes a deferred compensation plan (section 457(b) plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state. H&r block basic The term qualified employer plan also includes: A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan), A qualified employee annuity plan (section 403(a) plan), and A tax-sheltered annuity plan (section 403(b) plan). H&r block basic More information about IRAs can be found in Publication 590, Individual Retirement Arrangements (IRAs). H&r block basic Prev  Up  Next   Home   More Online Publications
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The U.S. House of Representatives and the U.S. Senate make up the two chambers of Congress. The House has 435 members, the number representing each state is determined by population.

The H&r Block Basic

H&r block basic 4. H&r block basic   Transportation Table of Contents Parking fees. H&r block basic Advertising display on car. H&r block basic Car pools. H&r block basic Hauling tools or instruments. H&r block basic Union members' trips from a union hall. H&r block basic Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. H&r block basic These expenses include the cost of transportation by air, rail, bus, taxi, etc. H&r block basic , and the cost of driving and maintaining your car. H&r block basic Transportation expenses include the ordinary and necessary costs of all of the following. H&r block basic Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. H&r block basic Tax home is defined in chapter 1. H&r block basic Visiting clients or customers. H&r block basic Going to a business meeting away from your regular workplace. H&r block basic Getting from your home to a temporary workplace when you have one or more regular places of work. H&r block basic These temporary workplaces can be either within the area of your tax home or outside that area. H&r block basic Transportation expenses do not include expenses you have while traveling away from home overnight. H&r block basic Those expenses are travel expenses discussed in chapter 1 . H&r block basic However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. H&r block basic See Car Expenses , later. H&r block basic Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. H&r block basic However, there may be exceptions to this general rule. H&r block basic You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. H&r block basic Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. H&r block basic Illustration of transportation expenses. H&r block basic    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. H&r block basic You may want to refer to it when deciding whether you can deduct your transportation expenses. H&r block basic Temporary work location. H&r block basic   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. H&r block basic   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. H&r block basic   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. H&r block basic   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. H&r block basic It will not be treated as temporary after the date you determine it will last more than 1 year. H&r block basic   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. H&r block basic You may have deductible travel expenses as discussed in chapter 1 . H&r block basic No regular place of work. H&r block basic   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. H&r block basic   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. H&r block basic   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. H&r block basic These are nondeductible commuting expenses. H&r block basic Two places of work. H&r block basic   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. H&r block basic However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. H&r block basic   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. H&r block basic You cannot deduct them. H&r block basic Armed Forces reservists. H&r block basic   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. H&r block basic You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . H&r block basic   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. H&r block basic In this case, your transportation generally is a nondeductible commuting expense. H&r block basic However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. H&r block basic   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. H&r block basic   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. H&r block basic These expenses are discussed in chapter 1 . H&r block basic   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. H&r block basic For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. H&r block basic Commuting expenses. H&r block basic   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. H&r block basic These costs are personal commuting expenses. H&r block basic You cannot deduct commuting expenses no matter how far your home is from your regular place of work. H&r block basic You cannot deduct commuting expenses even if you work during the commuting trip. H&r block basic Example. H&r block basic You sometimes use your cell phone to make business calls while commuting to and from work. H&r block basic Sometimes business associates ride with you to and from work, and you have a business discussion in the car. H&r block basic These activities do not change the trip from personal to business. H&r block basic You cannot deduct your commuting expenses. H&r block basic Parking fees. H&r block basic    Fees you pay to park your car at your place of business are nondeductible commuting expenses. H&r block basic You can, however, deduct business-related parking fees when visiting a customer or client. H&r block basic Advertising display on car. H&r block basic   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. H&r block basic If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. H&r block basic Car pools. H&r block basic   You cannot deduct the cost of using your car in a nonprofit car pool. H&r block basic Do not include payments you receive from the passengers in your income. H&r block basic These payments are considered reimbursements of your expenses. H&r block basic However, if you operate a car pool for a profit, you must include payments from passengers in your income. H&r block basic You can then deduct your car expenses (using the rules in this publication). H&r block basic Hauling tools or instruments. H&r block basic   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. H&r block basic However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). H&r block basic Union members' trips from a union hall. H&r block basic   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. H&r block basic Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. H&r block basic Office in the home. H&r block basic   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. H&r block basic (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. H&r block basic ) Examples of deductible transportation. H&r block basic   The following examples show when you can deduct transportation expenses based on the location of your work and your home. H&r block basic Example 1. H&r block basic You regularly work in an office in the city where you live. H&r block basic Your employer sends you to a 1-week training session at a different office in the same city. H&r block basic You travel directly from your home to the training location and return each day. H&r block basic You can deduct the cost of your daily round-trip transportation between your home and the training location. H&r block basic Example 2. H&r block basic Your principal place of business is in your home. H&r block basic You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. H&r block basic Example 3. H&r block basic You have no regular office, and you do not have an office in your home. H&r block basic In this case, the location of your first business contact inside the metropolitan area is considered your office. H&r block basic Transportation expenses between your home and this first contact are nondeductible commuting expenses. H&r block basic Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. H&r block basic While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. H&r block basic Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. H&r block basic You generally can use one of the two following methods to figure your deductible expenses. H&r block basic Standard mileage rate. H&r block basic Actual car expenses. H&r block basic If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. H&r block basic See Leasing a Car , later. H&r block basic In this publication, “car” includes a van, pickup, or panel truck. H&r block basic For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. H&r block basic Rural mail carriers. H&r block basic   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. H&r block basic Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. H&r block basic   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). H&r block basic You must complete Form 2106 and attach it to your Form 1040, U. H&r block basic S. H&r block basic Individual Income Tax Return. H&r block basic   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. H&r block basic It is given as an equipment maintenance allowance (EMA) to employees of the U. H&r block basic S. H&r block basic Postal Service. H&r block basic It is at the rate contained in the 1991 collective bargaining agreement. H&r block basic Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. H&r block basic See your employer for information on your reimbursement. H&r block basic    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. H&r block basic Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. H&r block basic For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. H&r block basic If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. H&r block basic You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. H&r block basic See Choosing the standard mileage rate and Standard mileage rate not allowed, later. H&r block basic You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. H&r block basic See chapter 6 for more information on reimbursements . H&r block basic Choosing the standard mileage rate. H&r block basic   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. H&r block basic Then, in later years, you can choose to use either the standard mileage rate or actual expenses. H&r block basic   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. H&r block basic For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. H&r block basic   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. H&r block basic You cannot revoke the choice. H&r block basic However, in later years, you can switch from the standard mileage rate to the actual expenses method. H&r block basic If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. H&r block basic Example. H&r block basic Larry is an employee who occasionally uses his own car for business purposes. H&r block basic He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. H&r block basic Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. H&r block basic   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. H&r block basic Standard mileage rate not allowed. H&r block basic   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. H&r block basic (See Rural mail carriers , earlier. H&r block basic ) Note. H&r block basic You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. H&r block basic Five or more cars. H&r block basic   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. H&r block basic However, you may be able to deduct your actual expenses for operating each of the cars in your business. H&r block basic See Actual Car Expenses , later, for information on how to figure your deduction. H&r block basic   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. H&r block basic   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. H&r block basic Example 1. H&r block basic Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. H&r block basic She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. H&r block basic Example 2. H&r block basic Tony and his employees use his four pickup trucks in his landscaping business. H&r block basic During the year, he traded in two of his old trucks for two newer ones. H&r block basic Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. H&r block basic Example 3. H&r block basic Chris owns a repair shop and an insurance business. H&r block basic He and his employees use his two pickup trucks and van for the repair shop. H&r block basic Chris alternates using his two cars for the insurance business. H&r block basic No one else uses the cars for business purposes. H&r block basic Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. H&r block basic Example 4. H&r block basic Maureen owns a car and four vans that are used in her housecleaning business. H&r block basic Her employees use the vans, and she uses the car to travel to various customers. H&r block basic Maureen cannot use the standard mileage rate for the car or the vans. H&r block basic This is because all five vehicles are used in Maureen's business at the same time. H&r block basic She must use actual expenses for all vehicles. H&r block basic Interest. H&r block basic   If you are an employee, you cannot deduct any interest paid on a car loan. H&r block basic This applies even if you use the car 100% for business as an employee. H&r block basic   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. H&r block basic For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). H&r block basic You cannot deduct the part of the interest expense that represents your personal use of the car. H&r block basic    If you use a home equity loan to purchase your car, you may be able to deduct the interest. H&r block basic See Publication 936, Home Mortgage Interest Deduction, for more information. H&r block basic Personal property taxes. H&r block basic   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. H&r block basic You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. H&r block basic   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). H&r block basic If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). H&r block basic Parking fees and tolls. H&r block basic   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. H&r block basic (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. H&r block basic ) Sale, trade-in, or other disposition. H&r block basic   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. H&r block basic See Disposition of a Car , later. H&r block basic Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. H&r block basic If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. H&r block basic Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. H&r block basic Continue to keep records, as explained later in chapter 5 . H&r block basic Business and personal use. H&r block basic   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. H&r block basic You can divide your expense based on the miles driven for each purpose. H&r block basic Example. H&r block basic You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. H&r block basic You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. H&r block basic Employer-provided vehicle. H&r block basic   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. H&r block basic You cannot use the standard mileage rate. H&r block basic See Vehicle Provided by Your Employer in chapter 6. H&r block basic Interest on car loans. H&r block basic   If you are an employee, you cannot deduct any interest paid on a car loan. H&r block basic This interest is treated as personal interest and is not deductible. H&r block basic If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. H&r block basic Taxes paid on your car. H&r block basic   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. H&r block basic Enter the amount paid on line 7 of Schedule A (Form 1040). H&r block basic Sales taxes. H&r block basic   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. H&r block basic Fines and collateral. H&r block basic   You cannot deduct fines you pay or collateral you forfeit for traffic violations. H&r block basic Casualty and theft losses. H&r block basic   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. H&r block basic See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. H&r block basic Depreciation and section 179 deductions. H&r block basic   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. H&r block basic Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. H&r block basic However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. H&r block basic Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. H&r block basic The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. H&r block basic   Generally, there are limits on these deductions. H&r block basic Special rules apply if you use your car 50% or less in your work or business. H&r block basic   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. H&r block basic   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. H&r block basic Car defined. H&r block basic   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. H&r block basic Its unloaded gross vehicle weight must not be more than 6,000 pounds. H&r block basic A car includes any part, component, or other item physically attached to it or usually included in the purchase price. H&r block basic   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. H&r block basic Qualified nonpersonal use vehicles. H&r block basic   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. H&r block basic They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. H&r block basic Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. H&r block basic More information. H&r block basic   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. H&r block basic Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. H&r block basic If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. H&r block basic There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. H&r block basic See Depreciation Limits, later. H&r block basic You can claim the section 179 deduction only in the year you place the car in service. H&r block basic For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. H&r block basic Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. H&r block basic A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. H&r block basic Example. H&r block basic In 2012, you bought a new car and used it for personal purposes. H&r block basic In 2013, you began to use it for business. H&r block basic Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. H&r block basic However, you can claim a depreciation deduction for the business use of the car starting in 2013. H&r block basic See Depreciation Deduction , later. H&r block basic More than 50% business use requirement. H&r block basic   You must use the property more than 50% for business to claim any section 179 deduction. H&r block basic If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. H&r block basic The result is the cost of the property that can qualify for the section 179 deduction. H&r block basic Example. H&r block basic Peter purchased a car in April 2013 for $24,500 and used it 60% for business. H&r block basic Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). H&r block basic But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. H&r block basic Limits. H&r block basic   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. H&r block basic Limit on the amount of the section 179 deduction. H&r block basic   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. H&r block basic   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. H&r block basic If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. H&r block basic   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. H&r block basic   If you are married and 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. H&r block basic   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. H&r block basic You must allocate the dollar limit (after any reduction) between you. H&r block basic   For more information on the above section 179 deduction limits, see Publication 946. H&r block basic Limit for sport utility and certain other vehicles. H&r block basic   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. H&r block basic This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. H&r block basic However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly 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. H&r block basic    Limit on total section 179, special depreciation allowance, and depreciation deduction. H&r block basic   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. H&r block basic The limit is reduced if your business use of the car is less than 100%. H&r block basic See Depreciation Limits , later, for more information. H&r block basic Example. H&r block basic In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. H&r block basic However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). H&r block basic Cost of car. H&r block basic   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. H&r block basic For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. H&r block basic Your cost includes only the cash you paid. H&r block basic Basis of car for depreciation. H&r block basic   The amount of the section 179 deduction reduces your basis in your car. H&r block basic If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. H&r block basic The resulting amount is the basis in your car you use to figure your depreciation deduction. H&r block basic When to choose. H&r block basic   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. H&r block basic How to choose. H&r block basic    Employees use Form 2106 to make this choice and report the section 179 deduction. H&r block basic All others use Form 4562. H&r block basic   File the appropriate form with either of the following. H&r block basic Your original tax return filed for the year the property was placed in service (whether or not you file it timely). H&r block basic An amended return filed within the time prescribed by law. H&r block basic An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. H&r block basic The amended return must also include any resulting adjustments to taxable income. H&r block basic    You must keep records that show the specific identification of each piece of qualifying section 179 property. H&r block basic These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. H&r block basic Revoking an election. H&r block basic   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. H&r block basic Recapture of section 179 deduction. H&r block basic   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. H&r block basic If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. H&r block basic Any section 179 deduction claimed on the car is included in calculating the excess depreciation. H&r block basic For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. H&r block basic Dispositions. H&r block basic   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. H&r block basic You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). H&r block basic For information on the disposition of a car, see Disposition of a Car , later. H&r block basic Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. H&r block basic The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). H&r block basic The special depreciation allowance applies only for the first year the car is placed in service. H&r block basic To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). H&r block basic Combined depreciation. H&r block basic   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). H&r block basic For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). H&r block basic See Depreciation Limits , later in this chapter. H&r block basic Qualified car. H&r block basic   To be a qualified car (including trucks and vans), the car must meet all of the following tests. H&r block basic You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. H&r block basic Election not to claim the special depreciation allowance. H&r block basic   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. H&r block basic If you make this election, it applies to all 5-year property placed in service during the year. H&r block basic   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. H&r block basic    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. H&r block basic Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. H&r block basic This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. H&r block basic You generally need to know the following things about the car you intend to depreciate. H&r block basic Your basis in the car. H&r block basic The date you place the car in service. H&r block basic The method of depreciation and recovery period you will use. H&r block basic Basis. H&r block basic   Your basis in a car for figuring depreciation is generally its cost. H&r block basic This includes any amount you borrow or pay in cash, other property, or services. H&r block basic   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). H&r block basic However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). H&r block basic For one of these situations see Exception under Methods of depreciation, later. H&r block basic   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. H&r block basic Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . H&r block basic Placed in service. H&r block basic   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. H&r block basic Depreciation begins when the car is placed in service for use in your work or business or for the production of income. H&r block basic   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. H&r block basic Car placed in service and disposed of in the same year. H&r block basic   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. H&r block basic Methods of depreciation. H&r block basic   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). H&r block basic MACRS is discussed later in this chapter. H&r block basic Exception. H&r block basic   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. H&r block basic You must use straight line depreciation over the estimated remaining useful life of the car. H&r block basic   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. H&r block basic The rate per mile varies depending on the year(s) you used the standard mileage rate. H&r block basic For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. H&r block basic   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . H&r block basic You must use your adjusted basis in your car to figure your depreciation deduction. H&r block basic For additional information on the straight line method of depreciation, see Publication 946. H&r block basic More-than-50%-use test. H&r block basic   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. H&r block basic You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. H&r block basic   If your business use is 50% or less, you must use the straight line method to depreciate your car. H&r block basic This is explained later under Car Used 50% or Less for Business . H&r block basic Qualified business use. H&r block basic   A qualified business use is any use in your trade or business. H&r block basic It does not include use for the production of income (investment use). H&r block basic However, you do combine your business and investment use to compute your depreciation deduction for the tax year. H&r block basic Use of your car by another person. H&r block basic   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. H&r block basic It is directly connected with your business. H&r block basic It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). H&r block basic It results in a payment of fair market rent. H&r block basic This includes any payment to you for the use of your car. H&r block basic Business use changes. H&r block basic   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. H&r block basic See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. H&r block basic    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. H&r block basic Use for more than one purpose. H&r block basic   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. H&r block basic You do this on the basis of mileage. H&r block basic Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. H&r block basic Change from personal to business use. H&r block basic   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. H&r block basic In this case, you figure the percentage of business use for the year as follows. H&r block basic Determine the percentage of business use for the period following the change. H&r block basic Do this by dividing business miles by total miles driven during that period. H&r block basic Multiply the percentage in (1) by a fraction. H&r block basic The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. H&r block basic Example. H&r block basic You use a car only for personal purposes during the first 6 months of the year. H&r block basic During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. H&r block basic This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. H&r block basic Your business use for the year is 40% (80% × 6/12). H&r block basic Limits. H&r block basic   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. H&r block basic The maximum amount you can claim depends on the year in which you placed your car in service. H&r block basic You have to reduce the maximum amount if you did not use the car exclusively for business. H&r block basic See Depreciation Limits , later. H&r block basic Unadjusted basis. H&r block basic   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . H&r block basic Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. H&r block basic   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. H&r block basic Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. H&r block basic Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. H&r block basic Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. H&r block basic 1, 2006), and alternative motor vehicle credit. H&r block basic   See Form 8910 for information on the alternative motor vehicle credit. H&r block basic If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. H&r block basic See Car Used 50% or Less for Business, later, for more information. H&r block basic If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. H&r block basic Improvements. H&r block basic   A major improvement to a car is treated as a new item of 5-year recovery property. H&r block basic It is treated as placed in service in the year the improvement is made. H&r block basic It does not matter how old the car is when the improvement is added. H&r block basic Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. H&r block basic However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. H&r block basic Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. H&r block basic See Depreciation Limits , later. H&r block basic Car trade-in. H&r block basic   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. H&r block basic You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. H&r block basic If you make this election, you treat the old car as disposed of at the time of the trade-in. H&r block basic The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. H&r block basic You then figure your depreciation deduction for the new car beginning with the date you placed it in service. H&r block basic You make this election by completing Form 2106, Part II, Section D. H&r block basic This method is explained later, beginning at Effect of trade-in on basis . H&r block basic If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. H&r block basic You must apply two depreciation limits (see Depreciation Limits , later). H&r block basic The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. H&r block basic The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. H&r block basic You must use Form 4562 to compute your depreciation deduction. H&r block basic You cannot use Form 2106, Part II, Section D. H&r block basic This method is explained in Publication 946. H&r block basic   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). H&r block basic Otherwise, you must use the method described in (2). H&r block basic Effect of trade-in on basis. H&r block basic   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. H&r block basic For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. H&r block basic 168(i)-6(d)(3). H&r block basic Traded car used only for business. H&r block basic   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. H&r block basic Example. H&r block basic Paul trades in a car that has an adjusted basis of $5,000 for a new car. H&r block basic In addition, he pays cash of $20,000 for the new car. H&r block basic His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). H&r block basic Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. H&r block basic Traded car used partly in business. H&r block basic   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. H&r block basic This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. H&r block basic (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. H&r block basic See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. H&r block basic )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. H&r block basic Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. H&r block basic For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. H&r block basic Modified Accelerated Cost Recovery System (MACRS). H&r block basic   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. H&r block basic   The maximum amount you can deduct is limited, depending on the year you placed your car in service. H&r block basic See Depreciation Limits , later. H&r block basic Recovery period. H&r block basic   Under MACRS, cars are classified as 5-year property. H&r block basic You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. H&r block basic This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. H&r block basic Depreciation deduction for certain Indian reservation property. H&r block basic   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. H&r block basic The recovery that applies for a business-use car is 3 years instead of 5 years. H&r block basic However, the depreciation limits, discussed later, will still apply. H&r block basic   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. H&r block basic Depreciation methods. H&r block basic   You can use one of the following methods to depreciate your car. H&r block basic The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. H&r block basic The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. H&r block basic The straight line method (SL) over a 5-year recovery period. H&r block basic    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. H&r block basic This is because the chart has the switch to the straight line method built into its rates. H&r block basic   Before choosing a method, you may wish to consider the following facts. H&r block basic Using the straight line method provides equal yearly deductions throughout the recovery period. H&r block basic Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. H&r block basic MACRS depreciation chart. H&r block basic   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . H&r block basic Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. H&r block basic A similar chart appears in the Instructions for Form 2106. H&r block basic    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. H&r block basic   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. H&r block basic You file your return on a fiscal year basis. H&r block basic You file your return for a short tax year (less than 12 months). H&r block basic During the year, all of the following conditions apply. H&r block basic You placed some property in service from January through September. H&r block basic You placed some property in service from October through December. H&r block basic Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. H&r block basic   You placed qualified property in service on an Indian reservation. H&r block basic Depreciation in future years. H&r block basic   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. H&r block basic However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. H&r block basic In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. H&r block basic See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. H&r block basic    In future years, do not use the chart in this edition of the publication. H&r block basic Instead, use the chart in the publication or the form instructions for those future years. H&r block basic Disposition of car during recovery period. H&r block basic   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. H&r block basic See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. H&r block basic How to use the 2013 chart. H&r block basic   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. H&r block basic Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. H&r block basic If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. H&r block basic    Your deduction cannot be more than the maximum depreciation limit for cars. H&r block basic See Depreciation Limits, later. H&r block basic Example. H&r block basic Phil bought a used truck in February 2012 to use exclusively in his landscape business. H&r block basic He paid $9,200 for the truck with no trade-in. H&r block basic Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. H&r block basic Phil used the MACRS depreciation chart in 2012 to find his percentage. H&r block basic The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. H&r block basic He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. H&r block basic In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. H&r block basic His records show that the business use of his truck was 90% in 2013. H&r block basic Phil used Table 4-1 to find his percentage. H&r block basic Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. H&r block basic He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. H&r block basic Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. H&r block basic The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. H&r block basic The maximum amount you can deduct each year depends on the year you place the car in service. H&r block basic These limits are shown in the following tables. H&r block basic   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 10,9603 4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. H&r block basic 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. H&r block basic 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. H&r block basic 4$7,660 if you acquired the car before 5/6/2003. H&r block basic $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. H&r block basic 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. H&r block basic Trucks and vans. H&r block basic   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. H&r block basic A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. H&r block basic For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. H&r block basic Maximum Depreciation Deduction for Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 $11,3601 $5,300 $3,150 $1,875 2011 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. H&r block basic 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. H&r block basic Car used less than full year. H&r block basic   The depreciation limits are not reduced if you use a car for less than a full year. H&r block basic This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. H&r block basic However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. H&r block basic See Reduction for personal use , next. H&r block basic Reduction for personal use. H&r block basic   The depreciation limits are reduced based on your percentage of personal use. H&r block basic If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. H&r block basic Section 179 deduction. H&r block basic   The section 179 deduction is treated as a depreciation deduction. H&r block basic If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. H&r block basic Example. H&r block basic On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. H&r block basic He used it 80% for his business, and he chooses to take a section 179 deduction for the car. H&r block basic The car is not qualified property for purposes of the special depreciation allowance. H&r block basic Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. H&r block basic This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). H&r block basic Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). H&r block basic He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. H&r block basic Jack has reached his maximum depreciation deduction for 2013. H&r block basic For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. H&r block basic Deductions in years after the recovery period. H&r block basic   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. H&r block basic If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. H&r block basic Unrecovered basis. H&r block basic   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. H&r block basic The recovery period. H&r block basic   For 5-year property, your recovery period is 6 calendar years. H&r block basic A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. H&r block basic   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. H&r block basic You determine your unrecovered basis in the 7th year after you placed the car in service. H&r block basic How to treat unrecovered basis. H&r block basic   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. H&r block basic The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. H&r block basic For example, no deduction is allowed for a year you use your car 100% for personal purposes. H&r block basic Example. H&r block basic In April 2007, Bob bought and placed in service a car he used exclusively in his business. H&r block basic The car cost $31,500. H&r block basic Bob did not claim a section 179 deduction or the special depreciation allowance for the car. H&r block basic He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). H&r block basic For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. H&r block basic Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. H&r block basic      MACRS     Deprec. H&r block basic Year % Amount Limit Allowed 2007 20. H&r block basic 00 $6,300 $3,060 $ 3,060 2008 32. H&r block basic 00 10,080 4,900 4,900 2009 19. H&r block basic 20 6,048 2,850 2,850 2010 11. H&r block basic 52 3,629 1,775 1,775 2011 11. H&r block basic 52 3,629 1,775 1,775 2012 5. H&r block basic 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. H&r block basic   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). H&r block basic If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. H&r block basic   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. H&r block basic However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. H&r block basic For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. H&r block basic Table 4-1. H&r block basic 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. H&r block basic ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. H&r block basic   First, using the left column, find the date you first placed the car in service in 2013. H&r block basic Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. H&r block basic For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. H&r block basic Refer back to the MACRS Depreciation Chart for the year you placed the car in service. H&r block basic (See Car Used 50% or Less for Business . H&r block basic )  Multiply the unadjusted basis of your car by your business use percentage. H&r block basic Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. H&r block basic (Also see Depreciation Limits . H&r block basic )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. H&r block basic 1—Sept. H&r block basic 30 percentage instead of the Oct. H&r block basic 1—Dec. H&r block basic 31 percentage for your car. H&r block basic               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. H&r block basic If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. H&r block basic 1—Sept. H&r block basic 30 for figuring depreciation for your car. H&r block basic See Which Convention Applies? in chapter 4 of Publication 946 for more details. H&r block basic               Example. H&r block basic You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. H&r block basic You