Cost or FMV?

Today TaxMama® hears from CotoPop in the TaxQuips Forum with a good question. “A client purchases a high end car in January, 2010 (,000).
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It is only used for personal purposes in 2010 and 2011. In January 2012 client starts a new business and uses the car 80% for business. Client is going to use “actual expenses ” for calculating the auto expense. When calculating depreciation should he use the original purchase price or the FMV at the time converted the vehicle to business use ?


Dear CotoPop,

You’re right. There are two values involved.

When you put an asset to use for business purposes, the value you use for depreciation is the LOWER of cost or Fair Market Value.

So…you look up the value of the car in the month it was put to business use. You can use the Kelly Blue Book site or Edmunds…or any other place that shows similar cars.

Print out the information and specify which number you’re using and why.

For instance, if there are several similar models for sale, you might use the average of all those prices.

Or you might select the price of just one of the vehicles – because it has an identical configuration and similar mileage. That’s why I say, in the notes you put in your file, specify WHY you’ve selected that value.

Note: Do not use Sec 179 depreciation. You can only use that in the year of purchase.
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