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H&r Block Free Online E File

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H&r Block Free Online E File

H&r block free online e file 3. H&r block free online e file   Rent Expense Table of Contents Introduction Topics - This chapter discusses: RentConditional sales contract. H&r block free online e file Leveraged leases. H&r block free online e file Leveraged leases of limited-use property. H&r block free online e file Taxes on Leased Property Cost of Getting a Lease Improvements by Lessee Capitalizing Rent Expenses Introduction This chapter discusses the tax treatment of rent or lease payments you make for property you use in your business but do not own. H&r block free online e file It also discusses how to treat other kinds of payments you make that are related to your use of this property. H&r block free online e file These include payments you make for taxes on the property. H&r block free online e file Topics - This chapter discusses: The definition of rent Taxes on leased property The cost of getting a lease Improvements by the lessee Capitalizing rent expenses Rent Rent is any amount you pay for the use of property you do not own. H&r block free online e file In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. H&r block free online e file If you have or will receive equity in or title to the property, the rent is not deductible. H&r block free online e file Unreasonable rent. H&r block free online e file   You cannot take a rental deduction for unreasonable rent. H&r block free online e file Ordinarily, the issue of reasonableness arises only if you and the lessor are related. H&r block free online e file Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. H&r block free online e file Rent is not unreasonable just because it is figured as a percentage of gross sales. H&r block free online e file For examples of related persons, see Related persons in chapter 2, Publication 544. H&r block free online e file Rent on your home. H&r block free online e file   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. H&r block free online e file You must meet the requirements for business use of your home. H&r block free online e file For more information, see Business use of your home in chapter 1. H&r block free online e file Rent paid in advance. H&r block free online e file   Generally, rent paid in your trade or business is deductible in the year paid or accrued. H&r block free online e file If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. H&r block free online e file You can deduct the rest of your payment only over the period to which it applies. H&r block free online e file Example 1. H&r block free online e file You are a calendar year taxpayer and you leased a building for 5 years beginning July 1. H&r block free online e file Your rent is $12,000 per year. H&r block free online e file You paid the first year's rent ($12,000) on June 30. H&r block free online e file You can deduct only $6,000 (6/12 × $12,000) for the rent that applies to the first year. H&r block free online e file Example 2. H&r block free online e file You are a calendar year taxpayer. H&r block free online e file Last January you leased property for 3 years for $6,000 a year. H&r block free online e file You paid the full $18,000 (3 × $6,000) during the first year of the lease. H&r block free online e file Each year you can deduct only $6,000, the part of the lease that applies to that year. H&r block free online e file Canceling a lease. H&r block free online e file   You generally can deduct as rent an amount you pay to cancel a business lease. H&r block free online e file Lease or purchase. H&r block free online e file   There may be instances in which you must determine whether your payments are for rent or for the purchase of the property. H&r block free online e file You must first determine whether your agreement is a lease or a conditional sales contract. H&r block free online e file Payments made under a conditional sales contract are not deductible as rent expense. H&r block free online e file Conditional sales contract. H&r block free online e file   Whether an agreement is a conditional sales contract depends on the intent of the parties. H&r block free online e file Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. H&r block free online e file No single test, or special combination of tests, always applies. H&r block free online e file However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. H&r block free online e file The agreement applies part of each payment toward an equity interest you will receive. H&r block free online e file You get title to the property after you make a stated amount of required payments. H&r block free online e file The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. H&r block free online e file You pay much more than the current fair rental value of the property. H&r block free online e file You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. H&r block free online e file Determine this value when you make the agreement. H&r block free online e file You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. H&r block free online e file The agreement designates part of the payments as interest, or that part is easy to recognize as interest. H&r block free online e file Leveraged leases. H&r block free online e file   Leveraged lease transactions may not be considered leases. H&r block free online e file Leveraged leases generally involve three parties: a lessor, a lessee, and a lender to the lessor. H&r block free online e file Usually the lease term covers a large part of the useful life of the leased property, and the lessee's payments to the lessor are enough to cover the lessor's payments to the lender. H&r block free online e file   If you plan to take part in what appears to be a leveraged lease, you may want to get an advance ruling. H&r block free online e file Revenue Procedure 2001-28 on page 1156 of Internal Revenue Bulletin 2001-19 contains the guidelines the IRS will use to determine if a leveraged lease is a lease for federal income tax purposes. H&r block free online e file Revenue Procedure 2001-29 on page 1160 of the same Internal Revenue Bulletin provides the information required to be furnished in a request for an advance ruling on a leveraged lease transaction. H&r block free online e file Internal Revenue Bulletin 2001-19 is available at www. H&r block free online e file irs. H&r block free online e file gov/pub/irs-irbs/irb01-19. H&r block free online e file pdf. H&r block free online e file   In general, Revenue Procedure 2001-28 provides that, for advance ruling purposes only, the IRS will consider the lessor in a leveraged lease transaction to be the owner of the property and the transaction to be a valid lease if all the factors in the revenue procedure are met, including the following. H&r block free online e file The lessor must maintain a minimum unconditional “at risk” equity investment in the property (at least 20% of the cost of the property) during the entire lease term. H&r block free online e file The lessee may not have a contractual right to buy the property from the lessor at less than fair market value when the right is exercised. H&r block free online e file The lessee may not invest in the property, except as provided by Revenue Procedure 2001-28. H&r block free online e file The lessee may not lend any money to the lessor to buy the property or guarantee the loan used by the lessor to buy the property. H&r block free online e file The lessor must show that it expects to receive a profit apart from the tax deductions, allowances, credits, and other tax attributes. H&r block free online e file   The IRS may charge you a user fee for issuing a tax ruling. H&r block free online e file For more information, see Revenue Procedure 2014-1 available at  www. H&r block free online e file irs. H&r block free online e file gov/irb/2014-1_IRB/ar05. H&r block free online e file html. H&r block free online e file Leveraged leases of limited-use property. H&r block free online e file   The IRS will not issue advance rulings on leveraged leases of so-called limited-use property. H&r block free online e file Limited-use property is property not expected to be either useful to or usable by a lessor at the end of the lease term except for continued leasing or transfer to a lessee. H&r block free online e file See Revenue Procedure 2001-28 for examples of limited-use property and property that is not limited-use property. H&r block free online e file Leases over $250,000. H&r block free online e file   Special rules are provided for certain leases of tangible property. H&r block free online e file The rules apply if the lease calls for total payments of more than $250,000 and any of the following apply. H&r block free online e file Rents increase during the lease. H&r block free online e file Rents decrease during the lease. H&r block free online e file Rents are deferred (rent is payable after the end of the calendar year following the calendar year in which the use occurs and the rent is allocated). H&r block free online e file Rents are prepaid (rent is payable before the end of the calendar year preceding the calendar year in which the use occurs and the rent is allocated). H&r block free online e file These rules do not apply if your lease specifies equal amounts of rent for each month in the lease term and all rent payments are due in the calendar year to which the rent relates (or in the preceding or following calendar year). H&r block free online e file   Generally, if the special rules apply, you must use an accrual method of accounting (and time value of money principles) for your rental expenses, regardless of your overall method of accounting. H&r block free online e file In addition, in certain cases in which the IRS has determined that a lease was designed to achieve tax avoidance, you must take rent and stated or imputed interest into account under a constant rental accrual method in which the rent is treated as accruing ratably over the entire lease term. H&r block free online e file For details, see section 467 of the Internal Revenue Code. H&r block free online e file Taxes on Leased Property If you lease business property, you can deduct as additional rent any taxes you have to pay to or for the lessor. H&r block free online e file When you can deduct these taxes as additional rent depends on your accounting method. H&r block free online e file Cash method. H&r block free online e file   If you use the cash method of accounting, you can deduct the taxes as additional rent only for the tax year in which you pay them. H&r block free online e file Accrual method. H&r block free online e file   If you use an accrual method of accounting, you can deduct taxes as additional rent for the tax year in which you can determine all the following. H&r block free online e file That you have a liability for taxes on the leased property. H&r block free online e file How much the liability is. H&r block free online e file That economic performance occurred. H&r block free online e file   The liability and amount of taxes are determined by state or local law and the lease agreement. H&r block free online e file Economic performance occurs as you use the property. H&r block free online e file Example 1. H&r block free online e file Oak Corporation is a calendar year taxpayer that uses an accrual method of accounting. H&r block free online e file Oak leases land for use in its business. H&r block free online e file Under state law, owners of real property become liable (incur a lien on the property) for real estate taxes for the year on January 1 of that year. H&r block free online e file However, they do not have to pay these taxes until July 1 of the next year (18 months later) when tax bills are issued. H&r block free online e file Under the terms of the lease, Oak becomes liable for the real estate taxes in the later year when the tax bills are issued. H&r block free online e file If the lease ends before the tax bill for a year is issued, Oak is not liable for the taxes for that year. H&r block free online e file Oak cannot deduct the real estate taxes as rent until the tax bill is issued. H&r block free online e file This is when Oak's liability under the lease becomes fixed. H&r block free online e file Example 2. H&r block free online e file The facts are the same as in Example 1 except that, according to the terms of the lease, Oak becomes liable for the real estate taxes when the owner of the property becomes liable for them. H&r block free online e file As a result, Oak will deduct the real estate taxes as rent on its tax return for the earlier year. H&r block free online e file This is the year in which Oak's liability under the lease becomes fixed. H&r block free online e file Cost of Getting a Lease You may either enter into a new lease with the lessor of the property or get an existing lease from another lessee. H&r block free online e file Very often when you get an existing lease from another lessee, you must pay the previous lessee money to get the lease, besides having to pay the rent on the lease. H&r block free online e file If you get an existing lease on property or equipment for your business, you generally must amortize any amount you pay to get that lease over the remaining term of the lease. H&r block free online e file For example, if you pay $10,000 to get a lease and there are 10 years remaining on the lease with no option to renew, you can deduct $1,000 each year. H&r block free online e file The cost of getting an existing lease of tangible property is not subject to the amortization rules for section 197 intangibles discussed in chapter 8. H&r block free online e file Option to renew. H&r block free online e file   The term of the lease for amortization includes all renewal options plus any other period for which you and the lessor reasonably expect the lease to be renewed. H&r block free online e file However, this applies only if less than 75% of the cost of getting the lease is for the term remaining on the purchase date (not including any period for which you may choose to renew, extend, or continue the lease). H&r block free online e file Allocate the lease cost to the original term and any option term based on the facts and circumstances. H&r block free online e file In some cases, it may be appropriate to make the allocation using a present value computation. H&r block free online e file For more information, see Regulations section 1. H&r block free online e file 178-1(b)(5). H&r block free online e file Example 1. H&r block free online e file You paid $10,000 to get a lease with 20 years remaining on it and two options to renew for 5 years each. H&r block free online e file Of this cost, you paid $7,000 for the original lease and $3,000 for the renewal options. H&r block free online e file Because $7,000 is less than 75% of the total $10,000 cost of the lease (or $7,500), you must amortize the $10,000 over 30 years. H&r block free online e file That is the remaining life of your present lease plus the periods for renewal. H&r block free online e file Example 2. H&r block free online e file The facts are the same as in Example 1, except that you paid $8,000 for the original lease and $2,000 for the renewal options. H&r block free online e file You can amortize the entire $10,000 over the 20-year remaining life of the original lease. H&r block free online e file The $8,000 cost of getting the original lease was not less than 75% of the total cost of the lease (or $7,500). H&r block free online e file Cost of a modification agreement. H&r block free online e file   You may have to pay an additional “rent” amount over part of the lease period to change certain provisions in your lease. H&r block free online e file You must capitalize these payments and amortize them over the remaining period of the lease. H&r block free online e file You cannot deduct the payments as additional rent, even if they are described as rent in the agreement. H&r block free online e file Example. H&r block free online e file You are a calendar year taxpayer and sign a 20-year lease to rent part of a building starting on January 1. H&r block free online e file However, before you occupy it, you decide that you really need less space. H&r block free online e file The lessor agrees to reduce your rent from $7,000 to $6,000 per year and to release the excess space from the original lease. H&r block free online e file In exchange, you agree to pay an additional rent amount of $3,000, payable in 60 monthly installments of $50 each. H&r block free online e file   You must capitalize the $3,000 and amortize it over the 20-year term of the lease. H&r block free online e file Your amortization deduction each year will be $150 ($3,000 ÷ 20). H&r block free online e file You cannot deduct the $600 (12 × $50) that you will pay during each of the first 5 years as rent. H&r block free online e file Commissions, bonuses, and fees. H&r block free online e file   Commissions, bonuses, fees, and other amounts you pay to get a lease on property you use in your business are capital costs. H&r block free online e file You must amortize these costs over the term of the lease. H&r block free online e file Loss on merchandise and fixtures. H&r block free online e file   If you sell at a loss merchandise and fixtures that you bought solely to get a lease, the loss is a cost of getting the lease. H&r block free online e file You must capitalize the loss and amortize it over the remaining term of the lease. H&r block free online e file Improvements by Lessee If you add buildings or make other permanent improvements to leased property, depreciate the cost of the improvements using the modified accelerated cost recovery system (MACRS). H&r block free online e file Depreciate the property over its appropriate recovery period. H&r block free online e file You cannot amortize the cost over the remaining term of the lease. H&r block free online e file If you do not keep the improvements when you end the lease, figure your gain or loss based on your adjusted basis in the improvements at that time. H&r block free online e file For more information, see the discussion of MACRS in Publication 946, How To Depreciate Property. H&r block free online e file Assignment of a lease. H&r block free online e file   If a long-term lessee who makes permanent improvements to land later assigns all lease rights to you for money and you pay the rent required by the lease, the amount you pay for the assignment is a capital investment. H&r block free online e file If the rental value of the leased land increased since the lease began, part of your capital investment is for that increase in the rental value. H&r block free online e file The rest is for your investment in the permanent improvements. H&r block free online e file   The part that is for the increased rental value of the land is a cost of getting a lease, and you amortize it over the remaining term of the lease. H&r block free online e file You can depreciate the part that is for your investment in the improvements over the recovery period of the property as discussed earlier, without regard to the lease term. H&r block free online e file Capitalizing Rent Expenses Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. H&r block free online e file Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. H&r block free online e file You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. H&r block free online e file Indirect costs include amounts incurred for renting or leasing equipment, facilities, or land. H&r block free online e file Uniform capitalization rules. H&r block free online e file   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. H&r block free online e file Produce real property or tangible personal property. H&r block free online e file For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. H&r block free online e file Acquire property for resale. H&r block free online e file However, these rules do not apply to the following property. H&r block free online e file Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. H&r block free online e file Property you produce if you meet either of the following conditions. H&r block free online e file Your indirect costs of producing the property are $200,000 or less. H&r block free online e file You use the cash method of accounting and do not account for inventories. H&r block free online e file Example 1. H&r block free online e file You rent construction equipment to build a storage facility. H&r block free online e file If you are subject to the uniform capitalization rules, you must capitalize as part of the cost of the building the rent you paid for the equipment. H&r block free online e file You recover your cost by claiming a deduction for depreciation on the building. H&r block free online e file Example 2. H&r block free online e file You rent space in a facility to conduct your business of manufacturing tools. H&r block free online e file If you are subject to the uniform capitalization rules, you must include the rent you paid to occupy the facility in the cost of the tools you produce. H&r block free online e file More information. H&r block free online e file   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. H&r block free online e file Prev  Up  Next   Home   More Online Publications
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The H&r Block Free Online E File

H&r block free online e file 4. H&r block free online e file   Transportation Table of Contents Parking fees. H&r block free online e file Advertising display on car. H&r block free online e file Car pools. H&r block free online e file Hauling tools or instruments. H&r block free online e file Union members' trips from a union hall. H&r block free online e file 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 free online e file These expenses include the cost of transportation by air, rail, bus, taxi, etc. H&r block free online e file , and the cost of driving and maintaining your car. H&r block free online e file Transportation expenses include the ordinary and necessary costs of all of the following. H&r block free online e file 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 free online e file Tax home is defined in chapter 1. H&r block free online e file Visiting clients or customers. H&r block free online e file Going to a business meeting away from your regular workplace. H&r block free online e file Getting from your home to a temporary workplace when you have one or more regular places of work. H&r block free online e file These temporary workplaces can be either within the area of your tax home or outside that area. H&r block free online e file Transportation expenses do not include expenses you have while traveling away from home overnight. H&r block free online e file Those expenses are travel expenses discussed in chapter 1 . H&r block free online e file 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 free online e file See Car Expenses , later. H&r block free online e file 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 free online e file However, there may be exceptions to this general rule. H&r block free online e file 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 free online e file 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 free online e file Illustration of transportation expenses. H&r block free online e file    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 free online e file You may want to refer to it when deciding whether you can deduct your transportation expenses. H&r block free online e file Temporary work location. H&r block free online e file   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 free online e file   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 free online e file   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 free online e file   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 free online e file It will not be treated as temporary after the date you determine it will last more than 1 year. H&r block free online e file   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 free online e file You may have deductible travel expenses as discussed in chapter 1 . H&r block free online e file No regular place of work. H&r block free online e file   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 free online e file   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 free online e file   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. H&r block free online e file These are nondeductible commuting expenses. H&r block free online e file Two places of work. H&r block free online e file   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 free online e file 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 free online e file   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 free online e file You cannot deduct them. H&r block free online e file Armed Forces reservists. H&r block free online e file   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 free online e file You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . H&r block free online e file   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 free online e file In this case, your transportation generally is a nondeductible commuting expense. H&r block free online e file 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 free online e file   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 free online e file   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. H&r block free online e file These expenses are discussed in chapter 1 . H&r block free online e file   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 free online e file For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. H&r block free online e file Commuting expenses. H&r block free online e file   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 free online e file These costs are personal commuting expenses. H&r block free online e file You cannot deduct commuting expenses no matter how far your home is from your regular place of work. H&r block free online e file You cannot deduct commuting expenses even if you work during the commuting trip. H&r block free online e file Example. H&r block free online e file You sometimes use your cell phone to make business calls while commuting to and from work. H&r block free online e file Sometimes business associates ride with you to and from work, and you have a business discussion in the car. H&r block free online e file These activities do not change the trip from personal to business. H&r block free online e file You cannot deduct your commuting expenses. H&r block free online e file Parking fees. H&r block free online e file    Fees you pay to park your car at your place of business are nondeductible commuting expenses. H&r block free online e file You can, however, deduct business-related parking fees when visiting a customer or client. H&r block free online e file Advertising display on car. H&r block free online e file   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 free online e file If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. H&r block free online e file Car pools. H&r block free online e file   You cannot deduct the cost of using your car in a nonprofit car pool. H&r block free online e file Do not include payments you receive from the passengers in your income. H&r block free online e file These payments are considered reimbursements of your expenses. H&r block free online e file However, if you operate a car pool for a profit, you must include payments from passengers in your income. H&r block free online e file You can then deduct your car expenses (using the rules in this publication). H&r block free online e file Hauling tools or instruments. H&r block free online e file   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. H&r block free online e file 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 free online e file Union members' trips from a union hall. H&r block free online e file   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 free online e file 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 free online e file Office in the home. H&r block free online e file   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 free online e file (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 free online e file ) Examples of deductible transportation. H&r block free online e file   The following examples show when you can deduct transportation expenses based on the location of your work and your home. H&r block free online e file Example 1. H&r block free online e file You regularly work in an office in the city where you live. H&r block free online e file Your employer sends you to a 1-week training session at a different office in the same city. H&r block free online e file You travel directly from your home to the training location and return each day. H&r block free online e file You can deduct the cost of your daily round-trip transportation between your home and the training location. H&r block free online e file Example 2. H&r block free online e file Your principal place of business is in your home. H&r block free online e file 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 free online e file Example 3. H&r block free online e file You have no regular office, and you do not have an office in your home. H&r block free online e file In this case, the location of your first business contact inside the metropolitan area is considered your office. H&r block free online e file Transportation expenses between your home and this first contact are nondeductible commuting expenses. H&r block free online e file Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. H&r block free online e file 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 free online e file Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. H&r block free online e file You generally can use one of the two following methods to figure your deductible expenses. H&r block free online e file Standard mileage rate. H&r block free online e file Actual car expenses. H&r block free online e file 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 free online e file See Leasing a Car , later. H&r block free online e file In this publication, “car” includes a van, pickup, or panel truck. H&r block free online e file For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. H&r block free online e file Rural mail carriers. H&r block free online e file   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 free online e file 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 free online e file   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 free online e file You must complete Form 2106 and attach it to your Form 1040, U. H&r block free online e file S. H&r block free online e file Individual Income Tax Return. H&r block free online e file   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. H&r block free online e file It is given as an equipment maintenance allowance (EMA) to employees of the U. H&r block free online e file S. H&r block free online e file Postal Service. H&r block free online e file It is at the rate contained in the 1991 collective bargaining agreement. H&r block free online e file Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. H&r block free online e file See your employer for information on your reimbursement. H&r block free online e file    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. H&r block free online e file 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 free online e file For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. H&r block free online e file If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. H&r block free online e file You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. H&r block free online e file See Choosing the standard mileage rate and Standard mileage rate not allowed, later. H&r block free online e file 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 free online e file See chapter 6 for more information on reimbursements . H&r block free online e file Choosing the standard mileage rate. H&r block free online e file   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 free online e file Then, in later years, you can choose to use either the standard mileage rate or actual expenses. H&r block free online e file   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 free online e file 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 free online e file   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. H&r block free online e file You cannot revoke the choice. H&r block free online e file However, in later years, you can switch from the standard mileage rate to the actual expenses method. H&r block free online e file 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 free online e file Example. H&r block free online e file Larry is an employee who occasionally uses his own car for business purposes. H&r block free online e file He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. H&r block free online e file 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 free online e file   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. H&r block free online e file Standard mileage rate not allowed. H&r block free online e file   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 free online e file (See Rural mail carriers , earlier. H&r block free online e file ) Note. H&r block free online e file 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 free online e file Five or more cars. H&r block free online e file   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 free online e file However, you may be able to deduct your actual expenses for operating each of the cars in your business. H&r block free online e file See Actual Car Expenses , later, for information on how to figure your deduction. H&r block free online e file   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 free online e file   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 free online e file Example 1. H&r block free online e file Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. H&r block free online e file 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 free online e file Example 2. H&r block free online e file Tony and his employees use his four pickup trucks in his landscaping business. H&r block free online e file During the year, he traded in two of his old trucks for two newer ones. H&r block free online e file 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 free online e file Example 3. H&r block free online e file Chris owns a repair shop and an insurance business. H&r block free online e file He and his employees use his two pickup trucks and van for the repair shop. H&r block free online e file Chris alternates using his two cars for the insurance business. H&r block free online e file No one else uses the cars for business purposes. H&r block free online e file 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 free online e file Example 4. H&r block free online e file Maureen owns a car and four vans that are used in her housecleaning business. H&r block free online e file Her employees use the vans, and she uses the car to travel to various customers. H&r block free online e file Maureen cannot use the standard mileage rate for the car or the vans. H&r block free online e file This is because all five vehicles are used in Maureen's business at the same time. H&r block free online e file She must use actual expenses for all vehicles. H&r block free online e file Interest. H&r block free online e file   If you are an employee, you cannot deduct any interest paid on a car loan. H&r block free online e file This applies even if you use the car 100% for business as an employee. H&r block free online e file   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 free online e file 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 free online e file You cannot deduct the part of the interest expense that represents your personal use of the car. H&r block free online e file    If you use a home equity loan to purchase your car, you may be able to deduct the interest. H&r block free online e file See Publication 936, Home Mortgage Interest Deduction, for more information. H&r block free online e file Personal property taxes. H&r block free online e file   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 free online e file 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 free online e file   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 free online e file 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 free online e file Parking fees and tolls. H&r block free online e file   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. H&r block free online e file (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. H&r block free online e file ) Sale, trade-in, or other disposition. H&r block free online e file   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 free online e file See Disposition of a Car , later. H&r block free online e file 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 free online e file 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 free online e file 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 free online e file Continue to keep records, as explained later in chapter 5 . H&r block free online e file Business and personal use. H&r block free online e file   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. H&r block free online e file You can divide your expense based on the miles driven for each purpose. H&r block free online e file Example. H&r block free online e file 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 free online e file You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. H&r block free online e file Employer-provided vehicle. H&r block free online e file   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. H&r block free online e file You cannot use the standard mileage rate. H&r block free online e file See Vehicle Provided by Your Employer in chapter 6. H&r block free online e file Interest on car loans. H&r block free online e file   If you are an employee, you cannot deduct any interest paid on a car loan. H&r block free online e file This interest is treated as personal interest and is not deductible. H&r block free online e file If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. H&r block free online e file Taxes paid on your car. H&r block free online e file   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. H&r block free online e file Enter the amount paid on line 7 of Schedule A (Form 1040). H&r block free online e file Sales taxes. H&r block free online e file   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. H&r block free online e file Fines and collateral. H&r block free online e file   You cannot deduct fines you pay or collateral you forfeit for traffic violations. H&r block free online e file Casualty and theft losses. H&r block free online e file   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 free online e file See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. H&r block free online e file Depreciation and section 179 deductions. H&r block free online e file   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. H&r block free online e file Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. H&r block free online e file 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 free online e file Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. H&r block free online e file The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. H&r block free online e file   Generally, there are limits on these deductions. H&r block free online e file Special rules apply if you use your car 50% or less in your work or business. H&r block free online e file   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 free online e file   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 free online e file Car defined. H&r block free online e file   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 free online e file Its unloaded gross vehicle weight must not be more than 6,000 pounds. H&r block free online e file A car includes any part, component, or other item physically attached to it or usually included in the purchase price. H&r block free online e file   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 free online e file Qualified nonpersonal use vehicles. H&r block free online e file   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. H&r block free online e file 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 free online e file 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 free online e file More information. H&r block free online e file   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. H&r block free online e file 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 free online e file 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 free online e file 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 free online e file See Depreciation Limits, later. H&r block free online e file You can claim the section 179 deduction only in the year you place the car in service. H&r block free online e file 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 free online e file 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 free online e file 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 free online e file Example. H&r block free online e file In 2012, you bought a new car and used it for personal purposes. H&r block free online e file In 2013, you began to use it for business. H&r block free online e file Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. H&r block free online e file However, you can claim a depreciation deduction for the business use of the car starting in 2013. H&r block free online e file See Depreciation Deduction , later. H&r block free online e file More than 50% business use requirement. H&r block free online e file   You must use the property more than 50% for business to claim any section 179 deduction. H&r block free online e file 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 free online e file The result is the cost of the property that can qualify for the section 179 deduction. H&r block free online e file Example. H&r block free online e file Peter purchased a car in April 2013 for $24,500 and used it 60% for business. H&r block free online e file 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 free online e file But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. H&r block free online e file Limits. H&r block free online e file   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 free online e file Limit on the amount of the section 179 deduction. H&r block free online e file   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. H&r block free online e file   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 free online e file 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 free online e file   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 free online e file   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 free online e file   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. H&r block free online e file You must allocate the dollar limit (after any reduction) between you. H&r block free online e file   For more information on the above section 179 deduction limits, see Publication 946. H&r block free online e file Limit for sport utility and certain other vehicles. H&r block free online e file   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 free online e file 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 free online e file 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 free online e file    Limit on total section 179, special depreciation allowance, and depreciation deduction. H&r block free online e file   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 free online e file The limit is reduced if your business use of the car is less than 100%. H&r block free online e file See Depreciation Limits , later, for more information. H&r block free online e file Example. H&r block free online e file 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 free online e file 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 free online e file Cost of car. H&r block free online e file   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 free online e file 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 free online e file Your cost includes only the cash you paid. H&r block free online e file Basis of car for depreciation. H&r block free online e file   The amount of the section 179 deduction reduces your basis in your car. H&r block free online e file If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. H&r block free online e file The resulting amount is the basis in your car you use to figure your depreciation deduction. H&r block free online e file When to choose. H&r block free online e file   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 free online e file How to choose. H&r block free online e file    Employees use Form 2106 to make this choice and report the section 179 deduction. H&r block free online e file All others use Form 4562. H&r block free online e file   File the appropriate form with either of the following. H&r block free online e file Your original tax return filed for the year the property was placed in service (whether or not you file it timely). H&r block free online e file An amended return filed within the time prescribed by law. H&r block free online e file 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 free online e file The amended return must also include any resulting adjustments to taxable income. H&r block free online e file    You must keep records that show the specific identification of each piece of qualifying section 179 property. H&r block free online e file 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 free online e file Revoking an election. H&r block free online e file   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 free online e file Recapture of section 179 deduction. H&r block free online e file   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 free online e file 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 free online e file Any section 179 deduction claimed on the car is included in calculating the excess depreciation. H&r block free online e file For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. H&r block free online e file Dispositions. H&r block free online e file   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 free online e file 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 free online e file For information on the disposition of a car, see Disposition of a Car , later. H&r block free online e file 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 free online e file 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 free online e file The special depreciation allowance applies only for the first year the car is placed in service. H&r block free online e file 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 free online e file Combined depreciation. H&r block free online e file   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 free online e file 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 free online e file See Depreciation Limits , later in this chapter. H&r block free online e file Qualified car. H&r block free online e file   To be a qualified car (including trucks and vans), the car must meet all of the following tests. H&r block free online e file 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 free online e file Election not to claim the special depreciation allowance. H&r block free online e file   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. H&r block free online e file If you make this election, it applies to all 5-year property placed in service during the year. H&r block free online e file   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 free online e file    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 free online e file 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 free online e file 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 free online e file You generally need to know the following things about the car you intend to depreciate. H&r block free online e file Your basis in the car. H&r block free online e file The date you place the car in service. H&r block free online e file The method of depreciation and recovery period you will use. H&r block free online e file Basis. H&r block free online e file   Your basis in a car for figuring depreciation is generally its cost. H&r block free online e file This includes any amount you borrow or pay in cash, other property, or services. H&r block free online e file   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). H&r block free online e file However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). H&r block free online e file For one of these situations see Exception under Methods of depreciation, later. H&r block free online e file   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 free online e file Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . H&r block free online e file Placed in service. H&r block free online e file   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 free online e file 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 free online e file   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 free online e file Car placed in service and disposed of in the same year. H&r block free online e file   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 free online e file Methods of depreciation. H&r block free online e file   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). H&r block free online e file MACRS is discussed later in this chapter. H&r block free online e file Exception. H&r block free online e file   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 free online e file You must use straight line depreciation over the estimated remaining useful life of the car. H&r block free online e file   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 free online e file The rate per mile varies depending on the year(s) you used the standard mileage rate. H&r block free online e file 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 free online e file   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . H&r block free online e file You must use your adjusted basis in your car to figure your depreciation deduction. H&r block free online e file For additional information on the straight line method of depreciation, see Publication 946. H&r block free online e file More-than-50%-use test. H&r block free online e file   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. H&r block free online e file 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 free online e file   If your business use is 50% or less, you must use the straight line method to depreciate your car. H&r block free online e file This is explained later under Car Used 50% or Less for Business . H&r block free online e file Qualified business use. H&r block free online e file   A qualified business use is any use in your trade or business. H&r block free online e file It does not include use for the production of income (investment use). H&r block free online e file However, you do combine your business and investment use to compute your depreciation deduction for the tax year. H&r block free online e file Use of your car by another person. H&r block free online e file   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 free online e file It is directly connected with your business. H&r block free online e file 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 free online e file It results in a payment of fair market rent. H&r block free online e file This includes any payment to you for the use of your car. H&r block free online e file Business use changes. H&r block free online e file   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 free online e file See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. H&r block free online e file    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. H&r block free online e file Use for more than one purpose. H&r block free online e file   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 free online e file You do this on the basis of mileage. H&r block free online e file 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 free online e file Change from personal to business use. H&r block free online e file   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 free online e file In this case, you figure the percentage of business use for the year as follows. H&r block free online e file Determine the percentage of business use for the period following the change. H&r block free online e file Do this by dividing business miles by total miles driven during that period. H&r block free online e file Multiply the percentage in (1) by a fraction. H&r block free online e file 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 free online e file Example. H&r block free online e file You use a car only for personal purposes during the first 6 months of the year. H&r block free online e file 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 free online e file This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. H&r block free online e file Your business use for the year is 40% (80% × 6/12). H&r block free online e file Limits. H&r block free online e file   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. H&r block free online e file The maximum amount you can claim depends on the year in which you placed your car in service. H&r block free online e file You have to reduce the maximum amount if you did not use the car exclusively for business. H&r block free online e file See Depreciation Limits , later. H&r block free online e file Unadjusted basis. H&r block free online e file   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 free online e file Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. H&r block free online e file   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. H&r block free online e file Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. H&r block free online e file Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. H&r block free online e file 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 free online e file 1, 2006), and alternative motor vehicle credit. H&r block free online e file   See Form 8910 for information on the alternative motor vehicle credit. H&r block free online e file 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 free online e file See Car Used 50% or Less for Business, later, for more information. H&r block free online e file 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 free online e file Improvements. H&r block free online e file   A major improvement to a car is treated as a new item of 5-year recovery property. H&r block free online e file It is treated as placed in service in the year the improvement is made. H&r block free online e file It does not matter how old the car is when the improvement is added. H&r block free online e file Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. H&r block free online e file However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. H&r block free online e file 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 free online e file See Depreciation Limits , later. H&r block free online e file Car trade-in. H&r block free online e file   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 free online e file 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 free online e file If you make this election, you treat the old car as disposed of at the time of the trade-in. H&r block free online e file 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 free online e file You then figure your depreciation deduction for the new car beginning with the date you placed it in service. H&r block free online e file You make this election by completing Form 2106, Part II, Section D. H&r block free online e file This method is explained later, beginning at Effect of trade-in on basis . H&r block free online e file 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 free online e file You must apply two depreciation limits (see Depreciation Limits , later). H&r block free online e file 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 free online e file 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 free online e file You must use Form 4562 to compute your depreciation deduction. H&r block free online e file You cannot use Form 2106, Part II, Section D. H&r block free online e file This method is explained in Publication 946. H&r block free online e file   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 free online e file Otherwise, you must use the method described in (2). H&r block free online e file Effect of trade-in on basis. H&r block free online e file   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 free online e file 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 free online e file 168(i)-6(d)(3). H&r block free online e file Traded car used only for business. H&r block free online e file   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 free online e file Example. H&r block free online e file Paul trades in a car that has an adjusted basis of $5,000 for a new car. H&r block free online e file In addition, he pays cash of $20,000 for the new car. H&r block free online e file 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 free online e file 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 free online e file Traded car used partly in business. H&r block free online e file   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 free online e file 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 free online e file (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. H&r block free online e file See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. H&r block free online e file )   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 free online e file 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 free online e file For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. H&r block free online e file Modified Accelerated Cost Recovery System (MACRS). H&r block free online e file   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 free online e file   The maximum amount you can deduct is limited, depending on the year you placed your car in service. H&r block free online e file See Depreciation Limits , later. H&r block free online e file Recovery period. H&r block free online e file   Under MACRS, cars are classified as 5-year property. H&r block free online e file You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. H&r block free online e file 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 free online e file Depreciation deduction for certain Indian reservation property. H&r block free online e file   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 free online e file The recovery that applies for a business-use car is 3 years instead of 5 years. H&r block free online e file However, the depreciation limits, discussed later, will still apply. H&r block free online e file   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 free online e file Depreciation methods. H&r block free online e file   You can use one of the following methods to depreciate your car. H&r block free online e file 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 free online e file 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 free online e file The straight line method (SL) over a 5-year recovery period. H&r block free online e file    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 free online e file This is because the chart has the switch to the straight line method built into its rates. H&r block free online e file   Before choosing a method, you may wish to consider the following facts. H&r block free online e file Using the straight line method provides equal yearly deductions throughout the recovery period. H&r block free online e file Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. H&r block free online e file MACRS depreciation chart. H&r block free online e file   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . H&r block free online e file Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. H&r block free online e file A similar chart appears in the Instructions for Form 2106. H&r block free online e file    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. H&r block free online e file   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 free online e file You file your return on a fiscal year basis. H&r block free online e file You file your return for a short tax year (less than 12 months). H&r block free online e file During the year, all of the following conditions apply. H&r block free online e file You placed some property in service from January through September. H&r block free online e file You placed some property in service from October through December. H&r block free online e file 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 free online e file   You placed qualified property in service on an Indian reservation. H&r block free online e file Depreciation in future years. H&r block free online e file   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 free online e file However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. H&r block free online e file 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 free online e file See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. H&r block free online e file    In future years, do not use the chart in this edition of the publication. H&r block free online e file Instead, use the chart in the publication or the form instructions for those future years. H&r block free online e file Disposition of car during recovery period. H&r block free online e file   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 free online e file 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 free online e file How to use the 2013 chart. H&r block free online e file   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 free online e file Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. H&r block free online e file If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. H&r block free online e file    Your deduction cannot be more than the maximum depreciation limit for cars. H&r block free online e file See Depreciation Limits, later. H&r block free online e file Example. H&r block free online e file Phil bought a used truck in February 2012 to use exclusively in his landscape business. H&r block free online e file He paid $9,200 for the truck with no trade-in. H&r block free online e file 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 free online e file Phil used the MACRS depreciation chart in 2012 to find his percentage. H&r block free online e file The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. H&r block free online e file 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 free online e file In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. H&r block free online e file His records show that the business use of his truck was 90% in 2013. H&r block free online e file Phil used Table 4-1 to find his percentage. H&r block free online e file 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 free online e file 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 free online e file Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. H&r block free online e file The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. H&r block free online e file The maximum amount you can deduct each year depends on the year you place the car in service. H&r block free online e file These limits are shown in the following tables. H&r block free online e file   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 free online e file 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. H&r block free online e file 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. H&r block free online e file 4$7,660 if you acquired the car before 5/6/2003. H&r block free online e file $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. H&r block free online e file 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 free online e file Trucks and vans. H&r block free online e file   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. H&r block free online e file 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 free online e file For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. H&r block free online e file 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 free online e file 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 free online e file Car used less than full year. H&r block free online e file   The depreciation limits are not reduced if you use a car for less than a full year. H&r block free online e file 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 free online e file However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. H&r block free online e file See Reduction for personal use , next. H&r block free online e file Reduction for personal use. H&r block free online e file   The depreciation limits are reduced based on your percentage of personal use. H&r block free online e file 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 free online e file Section 179 deduction. H&r block free online e file   The section 179 deduction is treated as a depreciation deduction. H&r block free online e file 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 free online e file Example. H&r block free online e file On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. H&r block free online e file He used it 80% for his business, and he chooses to take a section 179 deduction for the car. H&r block free online e file The car is not qualified property for purposes of the special depreciation allowance. H&r block free online e file Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. H&r block free online e file 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 free online e file Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). H&r block free online e file He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. H&r block free online e file Jack has reached his maximum depreciation deduction for 2013. H&r block free online e file For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. H&r block free online e file Deductions in years after the recovery period. H&r block free online e file   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 free online e file 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 free online e file Unrecovered basis. H&r block free online e file   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 free online e file The recovery period. H&r block free online e file   For 5-year property, your recovery period is 6 calendar years. H&r block free online e file 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 free online e file   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. H&r block free online e file You determine your unrecovered basis in the 7th year after you placed the car in service. H&r block free online e file How to treat unrecovered basis. H&r block free online e file   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 free online e file 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 free online e file For example, no deduction is allowed for a year you use your car 100% for personal purposes. H&r block free online e file Example. H&r block free online e file In April 2007, Bob bought and placed in service a car he used exclusively in his business. H&r block free online e file The car cost $31,500. H&r block free online e file Bob did not claim a section 179 deduction or the special depreciation allowance for the car. H&r block free online e file He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). H&r block free online e file 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 free online e file 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 free online e file      MACRS     Deprec. H&r block free online e file Year % Amount Limit Allowed 2007 20. H&r block free online e file 00 $6,300 $3,060 $ 3,060 2008 32. H&r block free online e file 00 10,080 4,900 4,900 2009 19. H&r block free online e file 20 6,048 2,850 2,850 2010 11. H&r block free online e file 52 3,629 1,775 1,775 2011 11. H&r block free online e file 52 3,629 1,775 1,775 2012 5. H&r block free online e file 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 free online e file   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). H&r block free online e file 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 free online e file   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 free online e file 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 free online e file 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 free online e file Table 4-1. H&r block free online e file 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. H&r block free online e file ) 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 free online e file   First, using the left column, find the date you first placed the car in service in 2013. H&r block free online e file Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. H&r block free online e file 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 free online e file Refer back to the MACRS Depreciation Chart for the year you placed the car in service. H&r block free online e file (See Car Used 50% or Less for Business . H&r block free online e file )  Multiply the unadjusted basis of your car by your business use percentage. H&r block free online e file Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. H&r block free online e file (Also see Depreciation Limits . H&r block free online e file )   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 free online e file 1—Sept. H&r block free online e file 30 percentage instead of the Oct. H&r block free online e file 1—Dec. H&r block free online e file 31 percentage for your car. H&r block free online e file               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 free online e file 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 free online e file 1—Sept. H&r block free online e file 30 for figuring depreciation for your car. H&r block free online e file See Which Convention Applies? in chapter 4 of Publication 946 for more details. H&r block free online e file               Example. H&r block free online e file 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 free online e file You