In order to calculate depreciation on your vehicle, you need to know the
basis, when you placed the vehicle in service, and the depreciation method to
use.
Basis
If you purchase a vehicle and place it in service the same year, your
depreciable basis is the business percentage of the cost, less any section 179
deduction or special depreciation allowance you take. If you convert a vehicle
from personal to business use, the basis for depreciation is the fair market
value or your adjusted basis in the vehicle on the date of conversion. Your
adjusted basis would depend on how you acquired the vehicle (purchased it,
received it as a gift or inheritance), and would include any increases or
decreases in the original basis, such as permanent improvements or additions to
the vehicle, depreciation taken in prior years, or a casualty loss, for
example.
Depreciation Method
Generally, you use the Modified Accelerated Cost Recovery System (MACRS) to
depreciate vehicles. But if you used the standard mileage rate to deduct
expenses the first year you used the vehicle, you will have to use the
straight-line depreciation method if you decide to use actual expenses in a
later year. Also, in order to use MACRS, you must use the vehicle more than 50%
for business. Otherwise, you must use straight-line.
Accelerated depreciation methods include the 200% declining balance method
and the 150% declining balance method. When choosing a depreciation method, you
may want to consider which method will give you the most tax advantage, based
on your individual circumstances, financial projections, and tax planning. The
200% declining balance method provides the largest deductions in the earlier
years, followed by the 150% method. The straight-line method provides for equal
depreciation deductions over the life of the vehicle.