If you used the actual car expense method to figure your deduction for a car
you own and use in your business (or as an employee), you generally can claim a
depreciation deduction. However, there is a limit on the depreciation deduction
you can take for your car each year. See Depreciation Limit later.
Special Depreciation Allowance
The new law allows you to claim a special depreciation allowance. This special
allowance is a deduction equal to 30% of the depreciable basis of qualified
property. You figure the amount of the special depreciation allowance after any
section 179 deduction you choose to claim, but before figuring your regular
depreciation deduction under the Modified Accelerated Cost Recovery System
(MACRS). See Depreciation Deduction under Actual Car Expenses in
chapter 4 of Publication 463
for information about MACRS.
You can claim the special depreciation allowance only for the year the
qualified property is placed in service.
Qualified property. Qualified property includes a car (any four-wheeled
vehicle, including a truck or van not more than 6,000 pounds, that is made
primarily for use on public streets, roads, and highways) that meets all of the
following requirements.
- You bought it new.
- You bought it after September 10, 2001. (But a car is not qualified property if a binding written contract for you to buy the car was in effect before September 11, 2001.)
- You began using it for business after September 10, 2001, and used it more than 50% in a qualified business use.
Example. Bob bought a new car on October 15, 2001, for $20,000
and placed it in service immediately, using it 75% for business. Bob's car is
qualified property.
Bob chooses not to take a section 179 deduction for the car. He does claim the
new special depreciation allowance. Bob first must figure the car's depreciable
basis, which is $15,000 ($20,000 ?.75). He then figures the special depreciation
allowance of $4,500 ($15,000 ?.30).
The remaining depreciable basis of $10,500 ($15,000 - $4,500) is depreciated
using MACRS (200% declining balance method, half-year convention) and results in
a deduction of $2,100 ($10,500 ?.20), for a total depreciation deduction for 2001
of $6,600 ($4,500 + $2,100). However, Bob's depreciation deduction is limited to
$5,745 ($7,660 ?.75), as discussed next.
Depreciation Limit
The limit on your depreciation deduction for 2001 is increased to $7,660 for a
car that is qualified property (defined above) and for which you claim the
special depreciation allowance. The limit is increased to $23,080 if the car is
an electric car. The section 179 deduction is treated as depreciation for
purposes of this limit.
If you use a car less than 100% in your business or work, the limit is $7,660
(or $23,080 for an electric car) multiplied by the percentage of business and
investment use during the year.
For cars that do not qualify for (or for which you choose not to claim) the
special depreciation allowance, the limit remains $3,060 ($9,280 for electric
cars).
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