Words you may need to know (see Glossary):
- Basis
- Clean-fuel vehicle
- Convention
- Placed in service
- Recovery period
The depreciation deduction (including the section 179 deduction) you can claim for a passenger automobile each year is limited. (For the definition
of a passenger automobile, see What Is Listed Property? earlier.)
This section describes the maximum depreciation deduction amounts for 2001 and explains how to deduct, after the recovery period, the unrecovered
basis of your property that results from applying the passenger automobile limit.
Exception for clean-fuel modifications.
The passenger automobile limits do not apply to any costs you pay to retrofit parts and components to modify an automobile to run on
clean fuel. The limits apply only to the cost of the automobile without this modification.
Exception for leased cars.
The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the
business of leasing passenger automobiles. For information on when you are considered regularly engaged in the business of leasing listed property,
including passenger automobiles, see Exception for leased property, earlier, under Do the Business-Use Limits Apply.
Maximum Depreciation Deduction
Determine the maximum depreciation deduction you can claim for a passenger automobile based on the date you placed the automobile in service. The
maximum deduction amounts for most passenger automobiles for 2001 are shown in the following table.
Maximum Depreciation Deduction
for Passenger Automobiles
|
Year Placed in Service |
1st
Year |
2nd
Year |
3rd
Year |
4th Year and
Later |
| 2001 |
$3,060 |
$4,900 |
$2,950 |
$1,775 |
| 2000 |
|
4,900 |
2,950 |
1,775 |
| 1999 |
2,950 |
1,775 |
| 1995 - 1998 |
1,775 |
| 1993 - 1994 |
1,675 |
| 1991 - 1992 |
1,575 |
| Pre-1991 |
1,475 |
If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount proportionately.
Example.
On April 15, 2001, Virginia Hart bought a car for $10,000. She used the car only in her business. She files her tax return based on the calendar
year. She does not elect a section 179 deduction. Under MACRS, a car is 5-year property. Because she placed her car in service on April 15 and used it
only for business, she uses the percentages in Table A-1 to figure her depreciation on the car. Virginia multiplies the unadjusted basis of her car
($10,000) by 0.20 to get her depreciation of $2,000 for 2001. This $2,000 is below the maximum depreciation deduction of $3,060 for passenger
automobiles placed in service in 2001. She can deduct the full $2,000.
Electric Vehicles
The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other
automobiles. The maximum deduction amounts for electric cars for 2001 are shown in the following table.
Maximum Depreciation Deduction
for Electric Vehicles
|
Year Placed in Service |
1st
Year |
2nd
Year |
3rd
Year |
4th Year and
Later |
| 2001 |
$9,280 |
$14,800 |
$8,850 |
$5,325 |
| 2000 |
14,800 |
8,850 |
5,325 |
| 1999 |
8,950 |
5,325 |
| 1997 - 1998 |
5,425 |
For more information on electric vehicles, see chapter 12 of Publication 535.
Depreciation Worksheet for
Passenger Automobiles
You can use the following worksheet to figure your depreciation deduction using the percentage tables. Then use the information from this worksheet
to prepare Form 4562.
Depreciation Worksheet for
Passenger Automobiles
| Part I |
| 1. |
Description of property |
|
| 2. |
Date placed in service |
|
| 3. |
MACRS system (GDS or ADS) |
|
| 4. |
Recovery period |
|
| 5. |
Method and convention |
|
| 6. |
Depreciation rate (from tables) |
|
| 7. |
Maximum depreciation deduction for this year from the appropriate table |
|
|
| 8. |
Business/investment-use percentage |
|
| 9. |
Multiply line 7 by line 8. This is your adjusted maximum depreciation deduction |
| |
| 10. |
Section 179 deduction claimed this year (not more than line 9). Enter -0- if this is not the year you
placed the car in service. |
| |
| | Note.
1) If line 10 is equal to line 9, stop here. Your combined section 179 and depreciation deduction is limited to the amount on line 9.
2) If line 10 is less than line 9, complete Part II. |
| Part II |
| 11. |
Subtract line 10 from line 9. This is the limit on the amount you can deduct for depreciation |
| |
| 12. |
Cost or other basis (reduced by any section 179A deduction
1 or credit for electric vehicles
2) |
|
| 13. |
Multiply line 12 by line 8. This is your business/investment cost |
|
| 14. |
Section 179 deduction claimed in year you placed the car in service |
|
| 15. |
Subtract line 14 from line 13. This is your unadjusted basis |
|
| 16. |
Multiply line 15 by line 6. This is your tentative depreciation deduction |
| |
| 17. |
Enter the lesser of line 11 or line 16. This is your depreciation deduction |
| |
|
1The section 179A deduction is for clean-fuel vehicles or clean-fuel vehicle refueling property. When figuring the amount to enter on line
12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. |
|
2Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount.
|
The following example shows how to figure your depreciation deduction using the worksheet.
Example.
On September 26, 2001, Donald Banks bought a car for $18,000. He used the car 60% for business during 2001. He files his tax return based on the
calendar year. Under GDS, his car is 5-year property. Donald is electing a section 179 deduction of $1,000 on the car and uses Table A-1 to determine
the depreciation rate. Donald's depreciation deduction is limited to $836, as shown in the following worksheet.
Depreciation Worksheet for
Passenger Automobiles
| Part I |
| 1. |
Description of property |
Automobile |
| 2. |
Date placed in service |
9/26/01 |
| 3. |
MACRS system (GDS or ADS) |
GDS |
| 4. |
Recovery period |
5-Year |
| 5. |
Method and convention |
200% DB/Half-Year |
| 6. |
Depreciation rate (from tables) |
.20 |
| 7. |
Maximum depreciation deduction for this year from the appropriate table |
$3,060 |
| 8. |
Business/investment-use percentage |
60% |
| 9. |
Multiply line 7 by line 8. This is your adjusted maximum depreciation deduction |
| $1,836 |
| 10. |
Section 179 deduction claimed this year (not more than line 9). Enter -0- if this is not the year you
placed the car in service. |
| $1,000 |
| | Note.
1) If line 10 is equal to line 9, stop here. Your combined section 179 and depreciation deduction is limited to the amount on line 9.
2) If line 10 is less than line 9, complete Part II. |
| Part II |
| 11. |
Subtract line 10 from line 9. This is the limit on the amount you can deduct for depreciation |
| $836 |
| 12. |
Cost or other basis (reduced by any section 179A deduction
1 or credit for electric vehicles
2) |
$18,000 |
| 13. |
Multiply line 12 by line 8. This is your business/investment cost |
$10,800 |
| 14. |
Section 179 deduction claimed in year you placed the car in service |
$1,000 |
| 15. |
Subtract line 14 from line 13. This is your unadjusted basis |
$9,800 |
| 16. |
Multiply line 15 by line 6. This is your tentative depreciation deduction |
| $1,960 |
| 17. |
Enter the lesser of line 11 or line 16. This is your depreciation deduction |
| $836 |
|
1The section 179A deduction is for clean-fuel vehicles or clean-fuel vehicle refueling property. When figuring the amount to enter on line
12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. |
|
2Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount.
|
Deductions After the
Recovery Period
If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your
automobile at the end of the recovery period. If you continue to use the automobile for business, you can deduct that unrecovered basis after the
recovery period ends. You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. The maximum
amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. See Maximum
Depreciation Deduction, earlier.
Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit,
depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger
automobile limits had not applied.
You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. There is no
unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes
during all of the recovery period.
Example.
In May 1995, you bought and placed in service a car costing $30,000. The car was 5-year property under GDS (MACRS). You did not elect a section 179
deduction for the car. You used the car exclusively for business during the recovery period (1995 through 2000). You figured your depreciation as
shown below.
|
Year |
Percentage |
Amount |
Limit |
|
Allowed |
| 1995 |
20.0% |
$6,000 |
$3,060 |
|
$3,060 |
| 1996 |
32.0 |
9,600 |
4,900 |
|
4,900 |
| 1997 |
19.2 |
5,760 |
2,950 |
|
2,950 |
| 1998 |
11.52 |
3,456 |
1,775 |
|
1,775 |
| 1999 |
11.52 |
3,456 |
1,775 |
|
1,775 |
| 2000 |
5.76 |
1,728 |
1,775 |
|
1,728 |
| Total |
|
$16,188 |
At the end of 2000, you had an unrecovered basis of $13,812 ($30,000 - $16,188). If in 2001 and later years you continue to use the car 100%
for business, you can deduct each year the lesser of $1,775 or your remaining unrecovered basis.
If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount
allowable for that year. However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as
if the business use had been 100%. For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions
would have been $9,713 ($16,188 × 60%), but you would still have to reduce your basis by $16,188 to determine your unrecovered basis.
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