Switching from using mileage to actual vehicle expenses

Hi all,

I have a client who wants to switch from using business mileage for his small business to actual expenses for his vehicle.  He had a couple thousand business miles the first year and now, the second year, wants to get the depreciation for his Yukon, along with the other actual expenses.  Do you first take the mileage taken in the first year and multiply it by 26 cents (the depreciation mileage rate) and then use that number to subtract from the depreciable basis in the second year to get the dollar amount to depreciate? He only drove the vehicle 12% business use, I don't think that affects anything as far as being less than 50% business use since there is no Sect. 179 or bonus depreciation being taken.  So would it be cost of the vehicle x the 12% business use........ then use that number minus the first year depreciation number (mileage x 26 cents) to get the actual amount to depreciate for the vehicle?


And as far as setting up the depreciation schedule in the software, since he used the mileage allowance the first year, would the useful life now be 4 years instead of 5 (the usual 5 years minus the 1 year using mileage).....using straight line deprec.?



Thank you!

Not sure if this and the additional references therein will help. https://www.irs.gov/taxtopics/tc510

I am not 100% sure, but I don't think you use MACRS anymore. I think you have to use true straight line over useful life.

I am not 100% sure, but I don't think you use MACRS anymore. I think you have to use true straight line over useful life.

You’re right. Here’s an excerpt from sec. 4.05(3) of Rev. Proc. 2010-51:

By using the business standard mileage rate, the taxpayer has elected to exclude the automobile (if owned) from MACRS pursuant to § 168(f)(1). If, after using the business standard mileage rate, the taxpayer uses actual costs, the taxpayer must use straight-line depreciation for the automobile’s remaining estimated useful life (subject to the applicable depreciation deduction limitations under § 280F).

Ok thank you, but where does the depreciation mileage come into play?

And when you set it up in the software in that second year switch to actual, do you input the useful life at 5 or is it now 4 due to the first year already being used up with the mileage allowance?

You need to reduce original cost by the prior year standard mileage depreciation component to get the starting basis. In the year you start actual expenses you have to calculate depreciation you using true straight line depreciation over the remaining estimated useful life. This is not the MACRS 5 year life. This is an estimate of the true useful life of the vehicle. If it is a newer vehicle, it would probably be 8-20 years, maybe, depending on how much the vehicle is used (both for business and personal together). You may have to do some research on the average useful life of the make and model of vehicle and inquire as to how much it will be driven each year, etc.