Today TaxMama hears from Pam in the TaxQuips Forum, with a good question. “1 purchased 1 new vehicle in 2010 that is used for both of my businesses (Sch C). How do I allocate the new vehicle Sec 179 deprecation expense to both businesses?”
Aaaah Pam,
You would think that would be easy, since you really DO use the vehicle for business.
But…not so easy. Why?
Because at least one of those business will use the vehicle less than 50% of the time.
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Do BOTH of those businesses show a substantial profit?
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If they do, use the FULL allowable Sec 179 on the business where you use the car more than 50% of the time. Reduce the basis – and use straight-line depreciation on the other business.
After all, the total auto deduction for depreciation and Sec 179 are limited anyway.
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So, unless you’ve bought a vehicle that’s over 6,000 pounds, we’re looking at a maximum deduction for all vehicle depreciation, including Sec 179 and bonus depreciation of only $11,160. You can find the depreciation tables here on the SMBiz.com site.
And remember, you can find answers to all kinds of questions about depreciation and other tax issues, free. Where? Where else? At www.TaxMama.com.
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Hi Pam,
Since the other business uses the car only 10% of the time, I would skip it entirely.
Why? IRS knows that no one uses their car 100% of the time for business.
You go to the grocery store, movies, dry cleaner, to visit your family, etc., using your car.
So, the minor usage by a business that doesn’t show a profit anyway…skip it.
Or limit it to 5%.
Regardless, keep track of ALL mileage and also the mileage for each business. Keep good records.
Try using the Tax MiniMiser – it will let you keep track of 3 columns – personal, Bus 1, Bus 2
https://taxminimiser.com/
Here’s what you do.
Take the maximum depreciation on the business that uses the vehicle 90% of the time.
Sec 179 and/or bonus depreciation may only be taken on the business percentage use of the vehicle – in other words, you are limited to 90% of the $11,160.
If you must use the vehicle deduction for the second car, do this.
Reduce the basis ($25,000 – sec 179 10,044) x your 2nd business percentage. Then tell the software to use SL depreciation for this vehicle.
Hugs
Eva
Thank you. PLEASE CONFIRM. The one business that uses the vehicle 90%, shows a substantial profit. The other business that uses it 10%, show a minimal loss. I assume I would “Reduce the basis – and use straight-line depreciation on the other business” on Form 4562, correct? Would the reduced basis be 10% of the cost of the vehicle less, less Sec 179 and bonus depreciation of $11,160:
Vehicle cost: $25,000, Less Sec179 ($11,160) = $13,894. Reduced basis = 10% of $13,894 or $1,389. The $1,389 is to be SL depreciated over 5 years. Should the first year depreciation of $278 be taken in 2010 since the Sec the Sec 179 will be taken? MUCH THANKS.