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Irs ez Index A Adjusted basis: Adoption tax benefits, Adoption Tax Benefits Assessment for local improvements, Assessments for Local Improvements Canceled debt, Canceled Debt Excluded From Income Casualty and theft losses, Casualties and Thefts Credit for qualified electric vehicles, Vehicle Credits Decreases to, Decreases to Basis Depreciation, Depreciation Easements, Easements Employer-provided child care, Employer-Provided Child Care Example, Adjustments to Basis Example Gain from sale of home, Postponed Gain From Sale of Home Gas-guzzler tax, Gas-Guzzler Tax Increases to, Increases to Basis Section 179 deduction, Section 179 Deduction Subsidies for energy conservation, Exclusion of Subsidies for Energy Conservation Measures Adoption tax benefits, Adoption Tax Benefits Allocating basis, Allocating the Basis Assistance (see Tax help) Assumption of mortgage, Assumption of mortgage. Irs ez B Business acquired, Trade or Business Acquired Business assets, Business Assets Businesses exchanged, Exchange of business property. Irs ez C Canceled debt, Canceled Debt Excluded From Income Casualty and theft losses, Casualties and Thefts Change to business use, Property Changed to Business or Rental Use Community property, Community Property Constructing assets, Constructing assets. Irs ez Copyrights, Copyrights. Irs ez Cost basis: Allocating basis, Allocating the Basis Assumption of mortgage, Assumption of mortgage. Irs ez Capitalized costs, Activities subject to the rules. Irs ez , Deducting vs. Irs ez Capitalizing Costs Loans, low or no interest, Loans with low or no interest. Irs ez Real estate taxes, Real estate taxes. Irs ez Real property, Real Property Settlement costs (fees), Settlement costs. Irs ez D Decreases to basis, Decreases to Basis Demolition of building, Demolition of building. Irs ez Depreciation, Depreciation E Easements, Easements Employer-provided child care, Employer-Provided Child Care Exchanges: Involuntary, Involuntary Conversions Like-kind, Like-Kind Exchanges Nontaxable, Nontaxable Exchanges Partial business use of property, Partial Business Use of Property Taxable, Taxable Exchanges F Fair market value, Fair market value (FMV). Irs ez Franchises, Franchises, trademarks, and trade names. Irs ez Free tax services, How To Get Tax Help G Gain from sale of home, Postponed Gain From Sale of Home Gifts, property received, Property Received as a Gift Group of assets acquired, Group of Assets Acquired H Help (see Tax help) I Inherited property, Inherited Property Intangible assets, Intangible Assets Involuntary exchanges, Involuntary Conversions L Land and buildings, Land and Buildings Loans, low or no interest, Loans with low or no interest. Irs ez M More information (see Tax help) N Nontaxable exchanges: Like-kind, Like-Kind Exchanges Partial, Partially Nontaxable Exchange P Partially nontaxable exchanges, Partially Nontaxable Exchange Patents, Patents. Irs ez Points, Points. Irs ez Property changed to business use, Property Changed to Business or Rental Use Property received as a gift, Property Received as a Gift Property received for services: Bargain purchases, Bargain Purchases Fair market value, Property Received for Services Restricted property, Restricted Property Property transferred from a spouse, Property Transferred From a Spouse Publications (see Tax help) R Real estate taxes, Real estate taxes. Irs ez Real property, Real Property S Settlement costs (fees), Settlement costs. Irs ez Special-use valuation, Special-use valuation. Irs ez Spouse, property transferred from, Property Transferred From a Spouse Stocks and bonds, Stocks and Bonds Subdivided lots, Subdivided lots. Irs ez T Tax help, How To Get Tax Help Taxable exchanges, Taxable Exchanges Taxpayer Advocate, Contacting your Taxpayer Advocate. Irs ez Trade or business acquired, Trade or Business Acquired Trademarks and trade  names, Franchises, trademarks, and trade names. Irs ez Trading property (see Exchanges), Taxable Exchanges TTY/TDD information, How To Get Tax Help U Uniform capitalization rules: Activities subject to the rules, Activities subject to the rules. Irs ez Exceptions, Exceptions. Irs ez Prev  Up     Home   More Online Publications
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Irs ez 4. Irs ez   Transportation Table of Contents Parking fees. Irs ez Advertising display on car. Irs ez Car pools. Irs ez Hauling tools or instruments. Irs ez Union members' trips from a union hall. Irs ez 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. Irs ez These expenses include the cost of transportation by air, rail, bus, taxi, etc. Irs ez , and the cost of driving and maintaining your car. Irs ez Transportation expenses include the ordinary and necessary costs of all of the following. Irs ez 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. Irs ez Tax home is defined in chapter 1. Irs ez Visiting clients or customers. Irs ez Going to a business meeting away from your regular workplace. Irs ez Getting from your home to a temporary workplace when you have one or more regular places of work. Irs ez These temporary workplaces can be either within the area of your tax home or outside that area. Irs ez Transportation expenses do not include expenses you have while traveling away from home overnight. Irs ez Those expenses are travel expenses discussed in chapter 1 . Irs ez However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. Irs ez See Car Expenses , later. Irs ez Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. Irs ez However, there may be exceptions to this general rule. Irs ez You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Irs ez 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. Irs ez Illustration of transportation expenses. Irs ez    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. Irs ez You may want to refer to it when deciding whether you can deduct your transportation expenses. Irs ez Temporary work location. Irs ez   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. Irs ez   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. Irs ez   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. Irs ez   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. Irs ez It will not be treated as temporary after the date you determine it will last more than 1 year. Irs ez   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. Irs ez You may have deductible travel expenses as discussed in chapter 1 . Irs ez No regular place of work. Irs ez   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. Irs ez   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. Irs ez   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Irs ez These are nondeductible commuting expenses. Irs ez Two places of work. Irs ez   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. Irs ez 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. Irs ez   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. Irs ez You cannot deduct them. Irs ez Armed Forces reservists. Irs ez   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. Irs ez You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . Irs ez   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. Irs ez In this case, your transportation generally is a nondeductible commuting expense. Irs ez 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. Irs ez   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. Irs ez   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Irs ez These expenses are discussed in chapter 1 . Irs ez   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. Irs ez For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. Irs ez Commuting expenses. Irs ez   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. Irs ez These costs are personal commuting expenses. Irs ez You cannot deduct commuting expenses no matter how far your home is from your regular place of work. Irs ez You cannot deduct commuting expenses even if you work during the commuting trip. Irs ez Example. Irs ez You sometimes use your cell phone to make business calls while commuting to and from work. Irs ez Sometimes business associates ride with you to and from work, and you have a business discussion in the car. Irs ez These activities do not change the trip from personal to business. Irs ez You cannot deduct your commuting expenses. Irs ez Parking fees. Irs ez    Fees you pay to park your car at your place of business are nondeductible commuting expenses. Irs ez You can, however, deduct business-related parking fees when visiting a customer or client. Irs ez Advertising display on car. Irs ez   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. Irs ez If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. Irs ez Car pools. Irs ez   You cannot deduct the cost of using your car in a nonprofit car pool. Irs ez Do not include payments you receive from the passengers in your income. Irs ez These payments are considered reimbursements of your expenses. Irs ez However, if you operate a car pool for a profit, you must include payments from passengers in your income. Irs ez You can then deduct your car expenses (using the rules in this publication). Irs ez Hauling tools or instruments. Irs ez   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. Irs ez 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). Irs ez Union members' trips from a union hall. Irs ez   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. Irs ez Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. Irs ez Office in the home. Irs ez   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. Irs ez (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Irs ez ) Examples of deductible transportation. Irs ez   The following examples show when you can deduct transportation expenses based on the location of your work and your home. Irs ez Example 1. Irs ez You regularly work in an office in the city where you live. Irs ez Your employer sends you to a 1-week training session at a different office in the same city. Irs ez You travel directly from your home to the training location and return each day. Irs ez You can deduct the cost of your daily round-trip transportation between your home and the training location. Irs ez Example 2. Irs ez Your principal place of business is in your home. Irs ez You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. Irs ez Example 3. Irs ez You have no regular office, and you do not have an office in your home. Irs ez In this case, the location of your first business contact inside the metropolitan area is considered your office. Irs ez Transportation expenses between your home and this first contact are nondeductible commuting expenses. Irs ez Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Irs ez While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. Irs ez Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. Irs ez You generally can use one of the two following methods to figure your deductible expenses. Irs ez Standard mileage rate. Irs ez Actual car expenses. Irs ez 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. Irs ez See Leasing a Car , later. Irs ez In this publication, “car” includes a van, pickup, or panel truck. Irs ez For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. Irs ez Rural mail carriers. Irs ez   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. Irs ez Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. Irs ez   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). Irs ez You must complete Form 2106 and attach it to your Form 1040, U. Irs ez S. Irs ez Individual Income Tax Return. Irs ez   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. Irs ez It is given as an equipment maintenance allowance (EMA) to employees of the U. Irs ez S. Irs ez Postal Service. Irs ez It is at the rate contained in the 1991 collective bargaining agreement. Irs ez Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. Irs ez See your employer for information on your reimbursement. Irs ez    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. Irs ez 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. Irs ez For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Irs ez If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. Irs ez You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. Irs ez See Choosing the standard mileage rate and Standard mileage rate not allowed, later. Irs ez 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. Irs ez See chapter 6 for more information on reimbursements . Irs ez Choosing the standard mileage rate. Irs ez   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. Irs ez Then, in later years, you can choose to use either the standard mileage rate or actual expenses. Irs ez   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. Irs ez 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. Irs ez   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. Irs ez You cannot revoke the choice. Irs ez However, in later years, you can switch from the standard mileage rate to the actual expenses method. Irs ez 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. Irs ez Example. Irs ez Larry is an employee who occasionally uses his own car for business purposes. Irs ez He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. Irs ez 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. Irs ez   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. Irs ez Standard mileage rate not allowed. Irs ez   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. Irs ez (See Rural mail carriers , earlier. Irs ez ) Note. Irs ez 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. Irs ez Five or more cars. Irs ez   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. Irs ez However, you may be able to deduct your actual expenses for operating each of the cars in your business. Irs ez See Actual Car Expenses , later, for information on how to figure your deduction. Irs ez   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. Irs ez   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. Irs ez Example 1. Irs ez Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. Irs ez 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. Irs ez Example 2. Irs ez Tony and his employees use his four pickup trucks in his landscaping business. Irs ez During the year, he traded in two of his old trucks for two newer ones. Irs ez Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. Irs ez Example 3. Irs ez Chris owns a repair shop and an insurance business. Irs ez He and his employees use his two pickup trucks and van for the repair shop. Irs ez Chris alternates using his two cars for the insurance business. Irs ez No one else uses the cars for business purposes. Irs ez 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. Irs ez Example 4. Irs ez Maureen owns a car and four vans that are used in her housecleaning business. Irs ez Her employees use the vans, and she uses the car to travel to various customers. Irs ez Maureen cannot use the standard mileage rate for the car or the vans. Irs ez This is because all five vehicles are used in Maureen's business at the same time. Irs ez She must use actual expenses for all vehicles. Irs ez Interest. Irs ez   If you are an employee, you cannot deduct any interest paid on a car loan. Irs ez This applies even if you use the car 100% for business as an employee. Irs ez   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. Irs ez For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). Irs ez You cannot deduct the part of the interest expense that represents your personal use of the car. Irs ez    If you use a home equity loan to purchase your car, you may be able to deduct the interest. Irs ez See Publication 936, Home Mortgage Interest Deduction, for more information. Irs ez Personal property taxes. Irs ez   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. Irs ez You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. Irs ez   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). Irs ez 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). Irs ez Parking fees and tolls. Irs ez   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Irs ez (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Irs ez ) Sale, trade-in, or other disposition. Irs ez   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. Irs ez See Disposition of a Car , later. Irs ez Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. Irs ez If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. Irs ez 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. Irs ez Continue to keep records, as explained later in chapter 5 . Irs ez Business and personal use. Irs ez   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. Irs ez You can divide your expense based on the miles driven for each purpose. Irs ez Example. Irs ez 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. Irs ez You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. Irs ez Employer-provided vehicle. Irs ez   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. Irs ez You cannot use the standard mileage rate. Irs ez See Vehicle Provided by Your Employer in chapter 6. Irs ez Interest on car loans. Irs ez   If you are an employee, you cannot deduct any interest paid on a car loan. Irs ez This interest is treated as personal interest and is not deductible. Irs ez If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. Irs ez Taxes paid on your car. Irs ez   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. Irs ez Enter the amount paid on line 7 of Schedule A (Form 1040). Irs ez Sales taxes. Irs ez   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. Irs ez Fines and collateral. Irs ez   You cannot deduct fines you pay or collateral you forfeit for traffic violations. Irs ez Casualty and theft losses. Irs ez   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. Irs ez See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. Irs ez Depreciation and section 179 deductions. Irs ez   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Irs ez Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. Irs ez 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. Irs ez Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. Irs ez The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. Irs ez   Generally, there are limits on these deductions. Irs ez Special rules apply if you use your car 50% or less in your work or business. Irs ez   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. Irs ez   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. Irs ez Car defined. Irs ez   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. Irs ez Its unloaded gross vehicle weight must not be more than 6,000 pounds. Irs ez A car includes any part, component, or other item physically attached to it or usually included in the purchase price. Irs ez   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. Irs ez Qualified nonpersonal use vehicles. Irs ez   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Irs ez 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. Irs ez Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. Irs ez More information. Irs ez   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. Irs ez 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. Irs ez 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. Irs ez 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. Irs ez See Depreciation Limits, later. Irs ez You can claim the section 179 deduction only in the year you place the car in service. Irs ez 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. Irs ez Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. Irs ez A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. Irs ez Example. Irs ez In 2012, you bought a new car and used it for personal purposes. Irs ez In 2013, you began to use it for business. Irs ez Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. Irs ez However, you can claim a depreciation deduction for the business use of the car starting in 2013. Irs ez See Depreciation Deduction , later. Irs ez More than 50% business use requirement. Irs ez   You must use the property more than 50% for business to claim any section 179 deduction. Irs ez If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Irs ez The result is the cost of the property that can qualify for the section 179 deduction. Irs ez Example. Irs ez Peter purchased a car in April 2013 for $24,500 and used it 60% for business. Irs ez 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). Irs ez But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. Irs ez Limits. Irs ez   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. Irs ez Limit on the amount of the section 179 deduction. Irs ez   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. Irs ez   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. Irs ez 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. Irs ez   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. Irs ez   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. Irs ez   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. Irs ez You must allocate the dollar limit (after any reduction) between you. Irs ez   For more information on the above section 179 deduction limits, see Publication 946. Irs ez Limit for sport utility and certain other vehicles. Irs ez   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. Irs ez 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. Irs ez 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. Irs ez    Limit on total section 179, special depreciation allowance, and depreciation deduction. Irs ez   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. Irs ez The limit is reduced if your business use of the car is less than 100%. Irs ez See Depreciation Limits , later, for more information. Irs ez Example. Irs ez 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. Irs ez 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). Irs ez Cost of car. Irs ez   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. Irs ez 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. Irs ez Your cost includes only the cash you paid. Irs ez Basis of car for depreciation. Irs ez   The amount of the section 179 deduction reduces your basis in your car. Irs ez If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. Irs ez The resulting amount is the basis in your car you use to figure your depreciation deduction. Irs ez When to choose. Irs ez   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. Irs ez How to choose. Irs ez    Employees use Form 2106 to make this choice and report the section 179 deduction. Irs ez All others use Form 4562. Irs ez   File the appropriate form with either of the following. Irs ez Your original tax return filed for the year the property was placed in service (whether or not you file it timely). Irs ez An amended return filed within the time prescribed by law. Irs ez 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. Irs ez The amended return must also include any resulting adjustments to taxable income. Irs ez    You must keep records that show the specific identification of each piece of qualifying section 179 property. Irs ez These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Irs ez Revoking an election. Irs ez   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. Irs ez Recapture of section 179 deduction. Irs ez   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. Irs ez 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. Irs ez Any section 179 deduction claimed on the car is included in calculating the excess depreciation. Irs ez For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. Irs ez Dispositions. Irs ez   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. Irs ez 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). Irs ez For information on the disposition of a car, see Disposition of a Car , later. Irs ez 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. Irs ez 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). Irs ez The special depreciation allowance applies only for the first year the car is placed in service. Irs ez 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). Irs ez Combined depreciation. Irs ez   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). Irs ez For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Irs ez See Depreciation Limits , later in this chapter. Irs ez Qualified car. Irs ez   To be a qualified car (including trucks and vans), the car must meet all of the following tests. Irs ez 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. Irs ez Election not to claim the special depreciation allowance. Irs ez   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. Irs ez If you make this election, it applies to all 5-year property placed in service during the year. Irs ez   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. Irs ez    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. Irs ez 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. Irs ez This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. Irs ez You generally need to know the following things about the car you intend to depreciate. Irs ez Your basis in the car. Irs ez The date you place the car in service. Irs ez The method of depreciation and recovery period you will use. Irs ez Basis. Irs ez   Your basis in a car for figuring depreciation is generally its cost. Irs ez This includes any amount you borrow or pay in cash, other property, or services. Irs ez   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). Irs ez However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). Irs ez For one of these situations see Exception under Methods of depreciation, later. Irs ez   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. Irs ez Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . Irs ez Placed in service. Irs ez   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. Irs ez Depreciation begins when the car is placed in service for use in your work or business or for the production of income. Irs ez   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. Irs ez Car placed in service and disposed of in the same year. Irs ez   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. Irs ez Methods of depreciation. Irs ez   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). Irs ez MACRS is discussed later in this chapter. Irs ez Exception. Irs ez   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. Irs ez You must use straight line depreciation over the estimated remaining useful life of the car. Irs ez   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. Irs ez The rate per mile varies depending on the year(s) you used the standard mileage rate. Irs ez For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. Irs ez   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . Irs ez You must use your adjusted basis in your car to figure your depreciation deduction. Irs ez For additional information on the straight line method of depreciation, see Publication 946. Irs ez More-than-50%-use test. Irs ez   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. Irs ez You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. Irs ez   If your business use is 50% or less, you must use the straight line method to depreciate your car. Irs ez This is explained later under Car Used 50% or Less for Business . Irs ez Qualified business use. Irs ez   A qualified business use is any use in your trade or business. Irs ez It does not include use for the production of income (investment use). Irs ez However, you do combine your business and investment use to compute your depreciation deduction for the tax year. Irs ez Use of your car by another person. Irs ez   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. Irs ez It is directly connected with your business. Irs ez It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). Irs ez It results in a payment of fair market rent. Irs ez This includes any payment to you for the use of your car. Irs ez Business use changes. Irs ez   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. Irs ez See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. Irs ez    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. Irs ez Use for more than one purpose. Irs ez   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. Irs ez You do this on the basis of mileage. Irs ez 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. Irs ez Change from personal to business use. Irs ez   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. Irs ez In this case, you figure the percentage of business use for the year as follows. Irs ez Determine the percentage of business use for the period following the change. Irs ez Do this by dividing business miles by total miles driven during that period. Irs ez Multiply the percentage in (1) by a fraction. Irs ez The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. Irs ez Example. Irs ez You use a car only for personal purposes during the first 6 months of the year. Irs ez 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. Irs ez This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. Irs ez Your business use for the year is 40% (80% × 6/12). Irs ez Limits. Irs ez   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. Irs ez The maximum amount you can claim depends on the year in which you placed your car in service. Irs ez You have to reduce the maximum amount if you did not use the car exclusively for business. Irs ez See Depreciation Limits , later. Irs ez Unadjusted basis. Irs ez   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) . Irs ez Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. Irs ez   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. Irs ez Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. Irs ez Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. Irs ez 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. Irs ez 1, 2006), and alternative motor vehicle credit. Irs ez   See Form 8910 for information on the alternative motor vehicle credit. Irs ez If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. Irs ez See Car Used 50% or Less for Business, later, for more information. Irs ez If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. Irs ez Improvements. Irs ez   A major improvement to a car is treated as a new item of 5-year recovery property. Irs ez It is treated as placed in service in the year the improvement is made. Irs ez It does not matter how old the car is when the improvement is added. Irs ez Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. Irs ez However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. Irs ez 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. Irs ez See Depreciation Limits , later. Irs ez Car trade-in. Irs ez   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. Irs ez You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Irs ez If you make this election, you treat the old car as disposed of at the time of the trade-in. Irs ez 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. Irs ez You then figure your depreciation deduction for the new car beginning with the date you placed it in service. Irs ez You make this election by completing Form 2106, Part II, Section D. Irs ez This method is explained later, beginning at Effect of trade-in on basis . Irs ez 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. Irs ez You must apply two depreciation limits (see Depreciation Limits , later). Irs ez 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. Irs ez 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. Irs ez You must use Form 4562 to compute your depreciation deduction. Irs ez You cannot use Form 2106, Part II, Section D. Irs ez This method is explained in Publication 946. Irs ez   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). Irs ez Otherwise, you must use the method described in (2). Irs ez Effect of trade-in on basis. Irs ez   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. Irs ez 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. Irs ez 168(i)-6(d)(3). Irs ez Traded car used only for business. Irs ez   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. Irs ez Example. Irs ez Paul trades in a car that has an adjusted basis of $5,000 for a new car. Irs ez In addition, he pays cash of $20,000 for the new car. Irs ez 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). Irs ez 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. Irs ez Traded car used partly in business. Irs ez   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. Irs ez 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. Irs ez (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. Irs ez See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. Irs ez )   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. Irs ez 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. Irs ez For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. Irs ez Modified Accelerated Cost Recovery System (MACRS). Irs ez   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. Irs ez   The maximum amount you can deduct is limited, depending on the year you placed your car in service. Irs ez See Depreciation Limits , later. Irs ez Recovery period. Irs ez   Under MACRS, cars are classified as 5-year property. Irs ez You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. Irs ez 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. Irs ez Depreciation deduction for certain Indian reservation property. Irs ez   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. Irs ez The recovery that applies for a business-use car is 3 years instead of 5 years. Irs ez However, the depreciation limits, discussed later, will still apply. Irs ez   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. Irs ez Depreciation methods. Irs ez   You can use one of the following methods to depreciate your car. Irs ez 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. Irs ez 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. Irs ez The straight line method (SL) over a 5-year recovery period. Irs ez    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. Irs ez This is because the chart has the switch to the straight line method built into its rates. Irs ez   Before choosing a method, you may wish to consider the following facts. Irs ez Using the straight line method provides equal yearly deductions throughout the recovery period. Irs ez Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. Irs ez MACRS depreciation chart. Irs ez   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . Irs ez Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. Irs ez A similar chart appears in the Instructions for Form 2106. Irs ez    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. Irs ez   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. Irs ez You file your return on a fiscal year basis. Irs ez You file your return for a short tax year (less than 12 months). Irs ez During the year, all of the following conditions apply. Irs ez You placed some property in service from January through September. Irs ez You placed some property in service from October through December. Irs ez 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. Irs ez   You placed qualified property in service on an Indian reservation. Irs ez Depreciation in future years. Irs ez   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. Irs ez However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. Irs ez 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. Irs ez See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Irs ez    In future years, do not use the chart in this edition of the publication. Irs ez Instead, use the chart in the publication or the form instructions for those future years. Irs ez Disposition of car during recovery period. Irs ez   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. Irs ez 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. Irs ez How to use the 2013 chart. Irs ez   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. Irs ez Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. Irs ez If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. Irs ez    Your deduction cannot be more than the maximum depreciation limit for cars. Irs ez See Depreciation Limits, later. Irs ez Example. Irs ez Phil bought a used truck in February 2012 to use exclusively in his landscape business. Irs ez He paid $9,200 for the truck with no trade-in. Irs ez 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. Irs ez Phil used the MACRS depreciation chart in 2012 to find his percentage. Irs ez The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. Irs ez 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. Irs ez In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. Irs ez His records show that the business use of his truck was 90% in 2013. Irs ez Phil used Table 4-1 to find his percentage. Irs ez Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. Irs ez 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. Irs ez Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. Irs ez The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. Irs ez The maximum amount you can deduct each year depends on the year you place the car in service. Irs ez These limits are shown in the following tables. Irs ez   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. Irs ez 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Irs ez 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Irs ez 4$7,660 if you acquired the car before 5/6/2003. Irs ez $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. Irs ez 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. Irs ez Trucks and vans. Irs ez   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. Irs ez 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. Irs ez For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. Irs ez 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. Irs ez 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. Irs ez Car used less than full year. Irs ez   The depreciation limits are not reduced if you use a car for less than a full year. Irs ez 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. Irs ez However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. Irs ez See Reduction for personal use , next. Irs ez Reduction for personal use. Irs ez   The depreciation limits are reduced based on your percentage of personal use. Irs ez 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. Irs ez Section 179 deduction. Irs ez   The section 179 deduction is treated as a depreciation deduction. Irs ez 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. Irs ez Example. Irs ez On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. Irs ez He used it 80% for his business, and he chooses to take a section 179 deduction for the car. Irs ez The car is not qualified property for purposes of the special depreciation allowance. Irs ez Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. Irs ez This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). Irs ez Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). Irs ez He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. Irs ez Jack has reached his maximum depreciation deduction for 2013. Irs ez For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. Irs ez Deductions in years after the recovery period. Irs ez   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. Irs ez If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. Irs ez Unrecovered basis. Irs ez   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. Irs ez The recovery period. Irs ez   For 5-year property, your recovery period is 6 calendar years. Irs ez 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. Irs ez   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. Irs ez You determine your unrecovered basis in the 7th year after you placed the car in service. Irs ez How to treat unrecovered basis. Irs ez   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. Irs ez The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. Irs ez For example, no deduction is allowed for a year you use your car 100% for personal purposes. Irs ez Example. Irs ez In April 2007, Bob bought and placed in service a car he used exclusively in his business. Irs ez The car cost $31,500. Irs ez Bob did not claim a section 179 deduction or the special depreciation allowance for the car. Irs ez He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). Irs ez 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. Irs ez 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. Irs ez      MACRS     Deprec. Irs ez Year % Amount Limit Allowed 2007 20. Irs ez 00 $6,300 $3,060 $ 3,060 2008 32. Irs ez 00 10,080 4,900 4,900 2009 19. Irs ez 20 6,048 2,850 2,850 2010 11. Irs ez 52 3,629 1,775 1,775 2011 11. Irs ez 52 3,629 1,775 1,775 2012 5. Irs ez 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. Irs ez   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). Irs ez 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. Irs ez   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. Irs ez 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%. Irs ez 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. Irs ez Table 4-1. Irs ez 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Irs ez ) 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. Irs ez   First, using the left column, find the date you first placed the car in service in 2013. Irs ez Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. Irs ez 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. Irs ez Refer back to the MACRS Depreciation Chart for the year you placed the car in service. Irs ez (See Car Used 50% or Less for Business . Irs ez )  Multiply the unadjusted basis of your car by your business use percentage. Irs ez Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. Irs ez (Also see Depreciation Limits . Irs ez )   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. Irs ez 1—Sept. Irs ez 30 percentage instead of the Oct. Irs ez 1—Dec. Irs ez 31 percentage for your car. Irs ez               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. Irs ez 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. Irs ez 1—Sept. Irs ez 30 for figuring depreciation for your car. Irs ez See Which Convention Applies? in chapter 4 of Publication 946 for more details. Irs ez               Example. Irs ez 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. Irs ez You