How do I calculate the rate of depreciation for a $110,000 car?
-- Rachel
A: Dear Rachel,
Normally the cost of an asset used for business purposes is written off over its useful life. Depreciation is calculated on an accelerated basis for most personal property (as opposed to straight-line depreciation for real property).
Useful lives are assigned depending on the class of the asset. Cars and other vehicles are assigned a five-year class life. Recognizing that an economy car provides the same utility to a business as does a luxury car, the amount of depreciation on a business car is capped each year.
The depreciation cap depends on the year that the vehicle is purchased for business use and the percentage of business use. It is widely recognized that a car is used for business as well as personal purposes.
The depreciation cap is reduced by the percentage of personal use. If business use is less than 50 percent, a different set of rules apply. Depreciation also varies depending on the availability to the taxpayer of the Section 179 expense allowance and the 50-percent bonus depreciation.
Revenue Procedure 2009-24 sets forth the depreciation limits for automobiles for 2009. Because of all the variables, I can't tell you exactly what your depreciation deduction should be, so you need to review the revenue procedure in detail to determine your circumstances.
