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1080ez 34. 1080ez   Child Tax Credit Table of Contents Introduction Useful Items - You may want to see: Qualifying Child Amount of CreditLimits on the Credit Claiming the Credit Additional Child Tax Credit Completing Schedule 8812 (Form 1040A or 1040)Part I Parts II–IV Introduction The child tax credit is a credit that may reduce your tax by as much as $1,000 for each of your qualifying children. 1080ez The additional child tax credit is a credit you may be able to take if you are not able to claim the full amount of the child tax credit. 1080ez This chapter explains the following. 1080ez Who is a qualifying child. 1080ez The amount of the credit. 1080ez How to claim the credit. 1080ez The child tax credit and the additional child tax credit should not be confused with the child and dependent care credit discussed in chapter 32. 1080ez If you have no tax. 1080ez   Credits, such as the child tax credit or the credit for child and dependent care expenses, are used to reduce tax. 1080ez If your tax on Form 1040, line 46, or Form 1040A, line 28, is zero, do not figure the child tax credit because there is no tax to reduce. 1080ez However, you may qualify for the additional child tax credit on line 65 (Form 1040) or line 39 (Form 1040A). 1080ez Useful Items - You may want to see: Publication 972 Child Tax Credit Form (and Instructions) Schedule 8812 (Form 1040A or 1040) Child Tax Credit W-4 Employee's Withholding Allowance Certificate Qualifying Child A qualifying child for purposes of the child tax credit is a child who: Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Was under age 17 at the end of 2013, Did not provide over half of his or her own support for 2013, Lived with you for more than half of 2013 (see Exceptions to time lived with you , later), Is claimed as a dependent on your return, Does not file a joint return for the year (or files it only as a claim for refund), and Was a U. 1080ez S. 1080ez citizen, a U. 1080ez S. 1080ez national, or a resident of the United States. 1080ez If the child was adopted, see Adopted child , later. 1080ez For each qualifying child you must check the box on Form 1040 or Form 1040A, line 6c. 1080ez Example 1. 1080ez Your son turned 17 on December 30, 2013. 1080ez He is a citizen of the United States and you claimed him as a dependent on your return. 1080ez He is not a qualifying child for the child tax credit because he was not under age 17 at the end of 2013. 1080ez Example 2. 1080ez Your daughter turned 8 years old in 2013. 1080ez She is not a citizen of the United States, has an ITIN, and lived in Mexico all of 2013. 1080ez She is not a qualifying child for the child tax credit because she was not a resident of the United States for 2013. 1080ez Filers who have certain child dependents with an Individual Taxpayer Identification Number (ITIN). 1080ez   If you are claiming a child tax credit or additional child tax credit for a child you identified on your tax return with an ITIN instead of an SSN, you must complete Part I of Schedule 8812 (Form 1040A or 1040). 1080ez   Although a child may be your dependent, you may only claim a child tax credit or additional child tax credit for a dependent who is a citizen, national, or resident of the United States. 1080ez To be treated as a resident of the United States, a child generally will need to meet the requirements of the substantial presence test. 1080ez For more information about the substantial presence test, see Publication 519, U. 1080ez S. 1080ez Tax Guide for Aliens. 1080ez Adopted child. 1080ez   An adopted child is always treated as your own child. 1080ez An adopted child includes a child lawfully placed with you for legal adoption. 1080ez   If you are a U. 1080ez S. 1080ez citizen or U. 1080ez S. 1080ez national and your adopted child lived with you all year as a member of your household in 2013, that child meets condition (7) above to be a qualifying child for the child tax credit. 1080ez Exceptions to time lived with you. 1080ez   A child is considered to have lived with you for more than half of 2013 if the child was born or died in 2013 and your home was this child's home for more than half the time he or she was alive. 1080ez Temporary absences by you or the child for special circumstances, such as for school, vacation, business, medical care, military service, or detention in a juvenile facility, count as time the child lived with you. 1080ez   There are also exceptions for kidnapped children and children of divorced or separated parents. 1080ez For details, see Residency Test in chapter 3. 1080ez Qualifying child of more than one person. 1080ez   A special rule applies if your qualifying child is the qualifying child of more than one person. 1080ez For details, see Special Rule for Qualifying Child of More Than One Person in chapter 3. 1080ez Amount of Credit The maximum amount you can claim for the credit is $1,000 for each qualifying child. 1080ez Limits on the Credit You must reduce your child tax credit if either (1) or (2) applies. 1080ez The amount on Form 1040, line 46, or Form 1040A, line 28, is less than the credit. 1080ez If this amount is zero, you cannot take this credit because there is no tax to reduce. 1080ez But you may be able to take the additional child tax credit. 1080ez See Additional Child Tax Credit , later. 1080ez Your modified adjusted gross income (AGI) is more than the amount shown below for your filing status. 1080ez Married filing jointly - $110,000. 1080ez Single, head of household, or qualifying widow(er) - $75,000. 1080ez Married filing separately - $55,000. 1080ez Modified AGI. 1080ez   For purposes of the child tax credit, your modified AGI is your AGI plus the following amounts that may apply to you. 1080ez Any amount excluded from income because of the exclusion of income from  Puerto Rico. 1080ez On the dotted line next to Form 1040, line 38, enter the amount excluded and identify it as “EPRI. 1080ez ” Also attach a copy of any Form(s) 499R-2/W-2PR to your return. 1080ez Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income. 1080ez Any amount on line 18 of Form 2555-EZ, Foreign Earned Income Exclusion. 1080ez Any amount on line 15 of Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa. 1080ez   If you do not have any of the above, your modified AGI is the same as your AGI. 1080ez AGI. 1080ez   Your AGI is the amount on Form 1040, line 38, or Form 1040A, line 22. 1080ez Claiming the Credit To claim the child tax credit, you must file Form 1040 or Form 1040A. 1080ez You cannot claim the child tax credit on Form 1040EZ. 1080ez You must provide the name and identification number (usually a social security number) on your tax return for each qualifying child. 1080ez If you claim the child tax credit with a child identified by an ITIN, you must also file Schedule 8812. 1080ez To figure your credit, first review the Child Tax Credit Worksheet in your Form 1040 or 1040A instructions. 1080ez If you are instructed to use Publication 972, you may not use the worksheet in your tax return instructions; instead, you must use Publication 972 to figure the credit. 1080ez If you are not instructed to use Publication 972, you may use the Child Tax Credit Worksheet in your Form 1040 or 1040A instructions or Publication 972 to figure the credit. 1080ez Additional Child Tax Credit This credit is for certain individuals who get less than the full amount of the child tax credit. 1080ez The additional child tax credit may give you a refund even if you do not owe any tax. 1080ez How to claim the additional child tax credit. 1080ez   To claim the additional child tax credit, follow the steps below. 1080ez Make sure you figured the amount, if any, of your child tax credit. 1080ez See Claiming the Credit , earlier. 1080ez If you answered “Yes” on line 9 or line 10 of the Child Tax Credit Worksheet in the Form 1040 or Form 1040A instructions, or line 13 of the Child Tax Credit Worksheet in Publication 972, use Parts II through IV of Schedule 8812 to see if you can take the additional child tax credit. 1080ez If you have an additional child tax credit on line 13 of Schedule 8812, carry it to Form 1040, line 65, or Form 1040A, line 39. 1080ez Completing Schedule 8812 (Form 1040A or 1040) Schedule 8812 contains four parts, but can really be thought of as two sections. 1080ez Part I is distinct and separate from Parts II–IV. 1080ez If all your children are identified by social security numbers or IRS adoption taxpayer identification numbers and you are not claiming the additional child tax credit, you do not need to complete or attach Schedule 8812 to your tax return. 1080ez Part I You only need to complete Part I if you are claiming the child tax credit for a child identified by an IRS individual taxpayer identification number (ITIN). 1080ez When completing Part I, only answer the questions with regard to children identified by an ITIN; you do not need to complete Part I of Schedule 8812 for any child that is identified by a social security number (SSN) or an IRS adoption taxpayer identification number (ATIN). 1080ez If all the children for whom you checked the box in column 4 of line 6c on your Form 1040 or Form 1040A are identified by an SSN or an ATIN, you do not need to complete Part I of Schedule 8812. 1080ez Parts II–IV Parts II–IV help you figure your additional child tax credit. 1080ez Generally, you should only complete Parts II–IV if you are instructed to do so after completing the Child Tax Credit Worksheet in your tax return instructions or Publication 972. 1080ez See How to claim the additional child tax credit , earlier. 1080ez Prev  Up  Next   Home   More Online Publications
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1080ez 4. 1080ez   Transportation Table of Contents Parking fees. 1080ez Advertising display on car. 1080ez Car pools. 1080ez Hauling tools or instruments. 1080ez Union members' trips from a union hall. 1080ez 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. 1080ez These expenses include the cost of transportation by air, rail, bus, taxi, etc. 1080ez , and the cost of driving and maintaining your car. 1080ez Transportation expenses include the ordinary and necessary costs of all of the following. 1080ez 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. 1080ez Tax home is defined in chapter 1. 1080ez Visiting clients or customers. 1080ez Going to a business meeting away from your regular workplace. 1080ez Getting from your home to a temporary workplace when you have one or more regular places of work. 1080ez These temporary workplaces can be either within the area of your tax home or outside that area. 1080ez Transportation expenses do not include expenses you have while traveling away from home overnight. 1080ez Those expenses are travel expenses discussed in chapter 1 . 1080ez However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. 1080ez See Car Expenses , later. 1080ez Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. 1080ez However, there may be exceptions to this general rule. 1080ez You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. 1080ez 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. 1080ez Illustration of transportation expenses. 1080ez    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. 1080ez You may want to refer to it when deciding whether you can deduct your transportation expenses. 1080ez Temporary work location. 1080ez   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. 1080ez   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. 1080ez   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. 1080ez   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. 1080ez It will not be treated as temporary after the date you determine it will last more than 1 year. 1080ez   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. 1080ez You may have deductible travel expenses as discussed in chapter 1 . 1080ez No regular place of work. 1080ez   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. 1080ez   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. 1080ez   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. 1080ez These are nondeductible commuting expenses. 1080ez Two places of work. 1080ez   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. 1080ez 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. 1080ez   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. 1080ez You cannot deduct them. 1080ez Armed Forces reservists. 1080ez   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. 1080ez You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . 1080ez   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. 1080ez In this case, your transportation generally is a nondeductible commuting expense. 1080ez 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. 1080ez   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. 1080ez   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. 1080ez These expenses are discussed in chapter 1 . 1080ez   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. 1080ez For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. 1080ez Commuting expenses. 1080ez   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. 1080ez These costs are personal commuting expenses. 1080ez You cannot deduct commuting expenses no matter how far your home is from your regular place of work. 1080ez You cannot deduct commuting expenses even if you work during the commuting trip. 1080ez Example. 1080ez You sometimes use your cell phone to make business calls while commuting to and from work. 1080ez Sometimes business associates ride with you to and from work, and you have a business discussion in the car. 1080ez These activities do not change the trip from personal to business. 1080ez You cannot deduct your commuting expenses. 1080ez Parking fees. 1080ez    Fees you pay to park your car at your place of business are nondeductible commuting expenses. 1080ez You can, however, deduct business-related parking fees when visiting a customer or client. 1080ez Advertising display on car. 1080ez   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. 1080ez If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. 1080ez Car pools. 1080ez   You cannot deduct the cost of using your car in a nonprofit car pool. 1080ez Do not include payments you receive from the passengers in your income. 1080ez These payments are considered reimbursements of your expenses. 1080ez However, if you operate a car pool for a profit, you must include payments from passengers in your income. 1080ez You can then deduct your car expenses (using the rules in this publication). 1080ez Hauling tools or instruments. 1080ez   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. 1080ez 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). 1080ez Union members' trips from a union hall. 1080ez   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. 1080ez Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. 1080ez Office in the home. 1080ez   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. 1080ez (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. 1080ez ) Examples of deductible transportation. 1080ez   The following examples show when you can deduct transportation expenses based on the location of your work and your home. 1080ez Example 1. 1080ez You regularly work in an office in the city where you live. 1080ez Your employer sends you to a 1-week training session at a different office in the same city. 1080ez You travel directly from your home to the training location and return each day. 1080ez You can deduct the cost of your daily round-trip transportation between your home and the training location. 1080ez Example 2. 1080ez Your principal place of business is in your home. 1080ez You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. 1080ez Example 3. 1080ez You have no regular office, and you do not have an office in your home. 1080ez In this case, the location of your first business contact inside the metropolitan area is considered your office. 1080ez Transportation expenses between your home and this first contact are nondeductible commuting expenses. 1080ez Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. 1080ez While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. 1080ez Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. 1080ez You generally can use one of the two following methods to figure your deductible expenses. 1080ez Standard mileage rate. 1080ez Actual car expenses. 1080ez 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. 1080ez See Leasing a Car , later. 1080ez In this publication, “car” includes a van, pickup, or panel truck. 1080ez For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. 1080ez Rural mail carriers. 1080ez   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. 1080ez Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. 1080ez   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). 1080ez You must complete Form 2106 and attach it to your Form 1040, U. 1080ez S. 1080ez Individual Income Tax Return. 1080ez   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. 1080ez It is given as an equipment maintenance allowance (EMA) to employees of the U. 1080ez S. 1080ez Postal Service. 1080ez It is at the rate contained in the 1991 collective bargaining agreement. 1080ez Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. 1080ez See your employer for information on your reimbursement. 1080ez    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. 1080ez 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. 1080ez For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. 1080ez If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. 1080ez You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. 1080ez See Choosing the standard mileage rate and Standard mileage rate not allowed, later. 1080ez 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. 1080ez See chapter 6 for more information on reimbursements . 1080ez Choosing the standard mileage rate. 1080ez   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. 1080ez Then, in later years, you can choose to use either the standard mileage rate or actual expenses. 1080ez   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. 1080ez 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. 1080ez   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. 1080ez You cannot revoke the choice. 1080ez However, in later years, you can switch from the standard mileage rate to the actual expenses method. 1080ez 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. 1080ez Example. 1080ez Larry is an employee who occasionally uses his own car for business purposes. 1080ez He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. 1080ez 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. 1080ez   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. 1080ez Standard mileage rate not allowed. 1080ez   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. 1080ez (See Rural mail carriers , earlier. 1080ez ) Note. 1080ez 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. 1080ez Five or more cars. 1080ez   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. 1080ez However, you may be able to deduct your actual expenses for operating each of the cars in your business. 1080ez See Actual Car Expenses , later, for information on how to figure your deduction. 1080ez   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. 1080ez   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. 1080ez Example 1. 1080ez Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. 1080ez 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. 1080ez Example 2. 1080ez Tony and his employees use his four pickup trucks in his landscaping business. 1080ez During the year, he traded in two of his old trucks for two newer ones. 1080ez Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. 1080ez Example 3. 1080ez Chris owns a repair shop and an insurance business. 1080ez He and his employees use his two pickup trucks and van for the repair shop. 1080ez Chris alternates using his two cars for the insurance business. 1080ez No one else uses the cars for business purposes. 1080ez 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. 1080ez Example 4. 1080ez Maureen owns a car and four vans that are used in her housecleaning business. 1080ez Her employees use the vans, and she uses the car to travel to various customers. 1080ez Maureen cannot use the standard mileage rate for the car or the vans. 1080ez This is because all five vehicles are used in Maureen's business at the same time. 1080ez She must use actual expenses for all vehicles. 1080ez Interest. 1080ez   If you are an employee, you cannot deduct any interest paid on a car loan. 1080ez This applies even if you use the car 100% for business as an employee. 1080ez   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. 1080ez For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). 1080ez You cannot deduct the part of the interest expense that represents your personal use of the car. 1080ez    If you use a home equity loan to purchase your car, you may be able to deduct the interest. 1080ez See Publication 936, Home Mortgage Interest Deduction, for more information. 1080ez Personal property taxes. 1080ez   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. 1080ez You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. 1080ez   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). 1080ez 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). 1080ez Parking fees and tolls. 1080ez   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. 1080ez (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. 1080ez ) Sale, trade-in, or other disposition. 1080ez   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. 1080ez See Disposition of a Car , later. 1080ez Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. 1080ez If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. 1080ez 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. 1080ez Continue to keep records, as explained later in chapter 5 . 1080ez Business and personal use. 1080ez   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. 1080ez You can divide your expense based on the miles driven for each purpose. 1080ez Example. 1080ez 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. 1080ez You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. 1080ez Employer-provided vehicle. 1080ez   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. 1080ez You cannot use the standard mileage rate. 1080ez See Vehicle Provided by Your Employer in chapter 6. 1080ez Interest on car loans. 1080ez   If you are an employee, you cannot deduct any interest paid on a car loan. 1080ez This interest is treated as personal interest and is not deductible. 1080ez If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. 1080ez Taxes paid on your car. 1080ez   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. 1080ez Enter the amount paid on line 7 of Schedule A (Form 1040). 1080ez Sales taxes. 1080ez   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. 1080ez Fines and collateral. 1080ez   You cannot deduct fines you pay or collateral you forfeit for traffic violations. 1080ez Casualty and theft losses. 1080ez   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. 1080ez See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. 1080ez Depreciation and section 179 deductions. 1080ez   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. 1080ez Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. 1080ez 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. 1080ez Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. 1080ez The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. 1080ez   Generally, there are limits on these deductions. 1080ez Special rules apply if you use your car 50% or less in your work or business. 1080ez   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. 1080ez   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. 1080ez Car defined. 1080ez   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. 1080ez Its unloaded gross vehicle weight must not be more than 6,000 pounds. 1080ez A car includes any part, component, or other item physically attached to it or usually included in the purchase price. 1080ez   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. 1080ez Qualified nonpersonal use vehicles. 1080ez   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. 1080ez 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. 1080ez Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. 1080ez More information. 1080ez   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. 1080ez 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. 1080ez 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. 1080ez 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. 1080ez See Depreciation Limits, later. 1080ez You can claim the section 179 deduction only in the year you place the car in service. 1080ez 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. 1080ez Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. 1080ez A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. 1080ez Example. 1080ez In 2012, you bought a new car and used it for personal purposes. 1080ez In 2013, you began to use it for business. 1080ez Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. 1080ez However, you can claim a depreciation deduction for the business use of the car starting in 2013. 1080ez See Depreciation Deduction , later. 1080ez More than 50% business use requirement. 1080ez   You must use the property more than 50% for business to claim any section 179 deduction. 1080ez If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. 1080ez The result is the cost of the property that can qualify for the section 179 deduction. 1080ez Example. 1080ez Peter purchased a car in April 2013 for $24,500 and used it 60% for business. 1080ez 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). 1080ez But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. 1080ez Limits. 1080ez   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. 1080ez Limit on the amount of the section 179 deduction. 1080ez   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. 1080ez   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. 1080ez 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. 1080ez   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. 1080ez   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. 1080ez   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. 1080ez You must allocate the dollar limit (after any reduction) between you. 1080ez   For more information on the above section 179 deduction limits, see Publication 946. 1080ez Limit for sport utility and certain other vehicles. 1080ez   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. 1080ez 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. 1080ez 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. 1080ez    Limit on total section 179, special depreciation allowance, and depreciation deduction. 1080ez   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. 1080ez The limit is reduced if your business use of the car is less than 100%. 1080ez See Depreciation Limits , later, for more information. 1080ez Example. 1080ez 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. 1080ez 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). 1080ez Cost of car. 1080ez   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. 1080ez 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. 1080ez Your cost includes only the cash you paid. 1080ez Basis of car for depreciation. 1080ez   The amount of the section 179 deduction reduces your basis in your car. 1080ez If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. 1080ez The resulting amount is the basis in your car you use to figure your depreciation deduction. 1080ez When to choose. 1080ez   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. 1080ez How to choose. 1080ez    Employees use Form 2106 to make this choice and report the section 179 deduction. 1080ez All others use Form 4562. 1080ez   File the appropriate form with either of the following. 1080ez Your original tax return filed for the year the property was placed in service (whether or not you file it timely). 1080ez An amended return filed within the time prescribed by law. 1080ez 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. 1080ez The amended return must also include any resulting adjustments to taxable income. 1080ez    You must keep records that show the specific identification of each piece of qualifying section 179 property. 1080ez These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. 1080ez Revoking an election. 1080ez   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. 1080ez Recapture of section 179 deduction. 1080ez   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. 1080ez 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. 1080ez Any section 179 deduction claimed on the car is included in calculating the excess depreciation. 1080ez For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. 1080ez Dispositions. 1080ez   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. 1080ez 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). 1080ez For information on the disposition of a car, see Disposition of a Car , later. 1080ez 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. 1080ez 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). 1080ez The special depreciation allowance applies only for the first year the car is placed in service. 1080ez 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). 1080ez Combined depreciation. 1080ez   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). 1080ez For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). 1080ez See Depreciation Limits , later in this chapter. 1080ez Qualified car. 1080ez   To be a qualified car (including trucks and vans), the car must meet all of the following tests. 1080ez 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. 1080ez Election not to claim the special depreciation allowance. 1080ez   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. 1080ez If you make this election, it applies to all 5-year property placed in service during the year. 1080ez   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. 1080ez    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. 1080ez 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. 1080ez This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. 1080ez You generally need to know the following things about the car you intend to depreciate. 1080ez Your basis in the car. 1080ez The date you place the car in service. 1080ez The method of depreciation and recovery period you will use. 1080ez Basis. 1080ez   Your basis in a car for figuring depreciation is generally its cost. 1080ez This includes any amount you borrow or pay in cash, other property, or services. 1080ez   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). 1080ez However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). 1080ez For one of these situations see Exception under Methods of depreciation, later. 1080ez   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. 1080ez Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . 1080ez Placed in service. 1080ez   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. 1080ez Depreciation begins when the car is placed in service for use in your work or business or for the production of income. 1080ez   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. 1080ez Car placed in service and disposed of in the same year. 1080ez   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. 1080ez Methods of depreciation. 1080ez   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). 1080ez MACRS is discussed later in this chapter. 1080ez Exception. 1080ez   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. 1080ez You must use straight line depreciation over the estimated remaining useful life of the car. 1080ez   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. 1080ez The rate per mile varies depending on the year(s) you used the standard mileage rate. 1080ez For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. 1080ez   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . 1080ez You must use your adjusted basis in your car to figure your depreciation deduction. 1080ez For additional information on the straight line method of depreciation, see Publication 946. 1080ez More-than-50%-use test. 1080ez   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. 1080ez You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. 1080ez   If your business use is 50% or less, you must use the straight line method to depreciate your car. 1080ez This is explained later under Car Used 50% or Less for Business . 1080ez Qualified business use. 1080ez   A qualified business use is any use in your trade or business. 1080ez It does not include use for the production of income (investment use). 1080ez However, you do combine your business and investment use to compute your depreciation deduction for the tax year. 1080ez Use of your car by another person. 1080ez   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. 1080ez It is directly connected with your business. 1080ez It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). 1080ez It results in a payment of fair market rent. 1080ez This includes any payment to you for the use of your car. 1080ez Business use changes. 1080ez   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. 1080ez See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. 1080ez    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. 1080ez Use for more than one purpose. 1080ez   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. 1080ez You do this on the basis of mileage. 1080ez 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. 1080ez Change from personal to business use. 1080ez   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. 1080ez In this case, you figure the percentage of business use for the year as follows. 1080ez Determine the percentage of business use for the period following the change. 1080ez Do this by dividing business miles by total miles driven during that period. 1080ez Multiply the percentage in (1) by a fraction. 1080ez The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. 1080ez Example. 1080ez You use a car only for personal purposes during the first 6 months of the year. 1080ez 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. 1080ez This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. 1080ez Your business use for the year is 40% (80% × 6/12). 1080ez Limits. 1080ez   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. 1080ez The maximum amount you can claim depends on the year in which you placed your car in service. 1080ez You have to reduce the maximum amount if you did not use the car exclusively for business. 1080ez See Depreciation Limits , later. 1080ez Unadjusted basis. 1080ez   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) . 1080ez Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. 1080ez   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. 1080ez Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. 1080ez Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. 1080ez 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. 1080ez 1, 2006), and alternative motor vehicle credit. 1080ez   See Form 8910 for information on the alternative motor vehicle credit. 1080ez If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. 1080ez See Car Used 50% or Less for Business, later, for more information. 1080ez If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. 1080ez Improvements. 1080ez   A major improvement to a car is treated as a new item of 5-year recovery property. 1080ez It is treated as placed in service in the year the improvement is made. 1080ez It does not matter how old the car is when the improvement is added. 1080ez Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. 1080ez However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. 1080ez 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. 1080ez See Depreciation Limits , later. 1080ez Car trade-in. 1080ez   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. 1080ez You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. 1080ez If you make this election, you treat the old car as disposed of at the time of the trade-in. 1080ez 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. 1080ez You then figure your depreciation deduction for the new car beginning with the date you placed it in service. 1080ez You make this election by completing Form 2106, Part II, Section D. 1080ez This method is explained later, beginning at Effect of trade-in on basis . 1080ez 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. 1080ez You must apply two depreciation limits (see Depreciation Limits , later). 1080ez 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. 1080ez 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. 1080ez You must use Form 4562 to compute your depreciation deduction. 1080ez You cannot use Form 2106, Part II, Section D. 1080ez This method is explained in Publication 946. 1080ez   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). 1080ez Otherwise, you must use the method described in (2). 1080ez Effect of trade-in on basis. 1080ez   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. 1080ez 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. 1080ez 168(i)-6(d)(3). 1080ez Traded car used only for business. 1080ez   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. 1080ez Example. 1080ez Paul trades in a car that has an adjusted basis of $5,000 for a new car. 1080ez In addition, he pays cash of $20,000 for the new car. 1080ez 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). 1080ez 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. 1080ez Traded car used partly in business. 1080ez   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. 1080ez 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. 1080ez (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. 1080ez See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. 1080ez )   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. 1080ez 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. 1080ez For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. 1080ez Modified Accelerated Cost Recovery System (MACRS). 1080ez   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. 1080ez   The maximum amount you can deduct is limited, depending on the year you placed your car in service. 1080ez See Depreciation Limits , later. 1080ez Recovery period. 1080ez   Under MACRS, cars are classified as 5-year property. 1080ez You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. 1080ez 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. 1080ez Depreciation deduction for certain Indian reservation property. 1080ez   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. 1080ez The recovery that applies for a business-use car is 3 years instead of 5 years. 1080ez However, the depreciation limits, discussed later, will still apply. 1080ez   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. 1080ez Depreciation methods. 1080ez   You can use one of the following methods to depreciate your car. 1080ez 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. 1080ez 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. 1080ez The straight line method (SL) over a 5-year recovery period. 1080ez    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. 1080ez This is because the chart has the switch to the straight line method built into its rates. 1080ez   Before choosing a method, you may wish to consider the following facts. 1080ez Using the straight line method provides equal yearly deductions throughout the recovery period. 1080ez Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. 1080ez MACRS depreciation chart. 1080ez   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . 1080ez Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. 1080ez A similar chart appears in the Instructions for Form 2106. 1080ez    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. 1080ez   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. 1080ez You file your return on a fiscal year basis. 1080ez You file your return for a short tax year (less than 12 months). 1080ez During the year, all of the following conditions apply. 1080ez You placed some property in service from January through September. 1080ez You placed some property in service from October through December. 1080ez 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. 1080ez   You placed qualified property in service on an Indian reservation. 1080ez Depreciation in future years. 1080ez   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. 1080ez However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. 1080ez 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. 1080ez See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. 1080ez    In future years, do not use the chart in this edition of the publication. 1080ez Instead, use the chart in the publication or the form instructions for those future years. 1080ez Disposition of car during recovery period. 1080ez   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. 1080ez 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. 1080ez How to use the 2013 chart. 1080ez   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. 1080ez Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. 1080ez If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. 1080ez    Your deduction cannot be more than the maximum depreciation limit for cars. 1080ez See Depreciation Limits, later. 1080ez Example. 1080ez Phil bought a used truck in February 2012 to use exclusively in his landscape business. 1080ez He paid $9,200 for the truck with no trade-in. 1080ez 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. 1080ez Phil used the MACRS depreciation chart in 2012 to find his percentage. 1080ez The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. 1080ez 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. 1080ez In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. 1080ez His records show that the business use of his truck was 90% in 2013. 1080ez Phil used Table 4-1 to find his percentage. 1080ez Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. 1080ez 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. 1080ez Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. 1080ez The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. 1080ez The maximum amount you can deduct each year depends on the year you place the car in service. 1080ez These limits are shown in the following tables. 1080ez   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. 1080ez 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. 1080ez 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. 1080ez 4$7,660 if you acquired the car before 5/6/2003. 1080ez $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. 1080ez 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. 1080ez Trucks and vans. 1080ez   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. 1080ez 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. 1080ez For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. 1080ez 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. 1080ez 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. 1080ez Car used less than full year. 1080ez   The depreciation limits are not reduced if you use a car for less than a full year. 1080ez 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. 1080ez However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. 1080ez See Reduction for personal use , next. 1080ez Reduction for personal use. 1080ez   The depreciation limits are reduced based on your percentage of personal use. 1080ez 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. 1080ez Section 179 deduction. 1080ez   The section 179 deduction is treated as a depreciation deduction. 1080ez 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. 1080ez Example. 1080ez On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. 1080ez He used it 80% for his business, and he chooses to take a section 179 deduction for the car. 1080ez The car is not qualified property for purposes of the special depreciation allowance. 1080ez Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. 1080ez This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). 1080ez Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). 1080ez He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. 1080ez Jack has reached his maximum depreciation deduction for 2013. 1080ez For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. 1080ez Deductions in years after the recovery period. 1080ez   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. 1080ez If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. 1080ez Unrecovered basis. 1080ez   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. 1080ez The recovery period. 1080ez   For 5-year property, your recovery period is 6 calendar years. 1080ez 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. 1080ez   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. 1080ez You determine your unrecovered basis in the 7th year after you placed the car in service. 1080ez How to treat unrecovered basis. 1080ez   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. 1080ez The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. 1080ez For example, no deduction is allowed for a year you use your car 100% for personal purposes. 1080ez Example. 1080ez In April 2007, Bob bought and placed in service a car he used exclusively in his business. 1080ez The car cost $31,500. 1080ez Bob did not claim a section 179 deduction or the special depreciation allowance for the car. 1080ez He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). 1080ez 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. 1080ez 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. 1080ez      MACRS     Deprec. 1080ez Year % Amount Limit Allowed 2007 20. 1080ez 00 $6,300 $3,060 $ 3,060 2008 32. 1080ez 00 10,080 4,900 4,900 2009 19. 1080ez 20 6,048 2,850 2,850 2010 11. 1080ez 52 3,629 1,775 1,775 2011 11. 1080ez 52 3,629 1,775 1,775 2012 5. 1080ez 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. 1080ez   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). 1080ez 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. 1080ez   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. 1080ez 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%. 1080ez 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. 1080ez Table 4-1. 1080ez 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. 1080ez ) 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. 1080ez   First, using the left column, find the date you first placed the car in service in 2013. 1080ez Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. 1080ez 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. 1080ez Refer back to the MACRS Depreciation Chart for the year you placed the car in service. 1080ez (See Car Used 50% or Less for Business . 1080ez )  Multiply the unadjusted basis of your car by your business use percentage. 1080ez Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. 1080ez (Also see Depreciation Limits . 1080ez )   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. 1080ez 1—Sept. 1080ez 30 percentage instead of the Oct. 1080ez 1—Dec. 1080ez 31 percentage for your car. 1080ez               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. 1080ez 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. 1080ez 1—Sept. 1080ez 30 for figuring depreciation for your car. 1080ez See Which Convention Applies? in chapter 4 of Publication 946 for more details. 1080ez               Example. 1080ez 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. 1080ez You