Depreciation

[tgrebeniuk]

One of my clients bought a business car in 2021, but the previous tax preparer didn't include it on their tax return. Can I add in 2022 and take 2022 depreciation?

[George4Tacks]

Depreciation starts when the asset is put into service. Did the prior preparer maybe inadvertently elect to state standard mileage rate? See Pub 510

"However, if you used the standard mileage rate in the year you place the car in service and change to the actual expense method in a later year and before your car is fully depreciated, you must use straight-line depreciation over the estimated remaining useful life of the car. "

[TaxGuyBill]

Yes, you can take Actual Expenses for a business vehicle, even if the prior return neglected to include vehicle expenses on the tax return.  But as was mentioned, unless the Standard Mileage Rate was used in the first year (timely filed), you can not use the Standard Mileage Rate.

[rcooley25]

Correct me if I am wrong. But once you use the standard mileage rate for a vehicle are you not suppose to continue using the standard mIleage rate for the  vehicle. I did not think you could change from year to year.

[Terry53029]

From IRS. Here is link. https://www.irs.gov/taxtopics/tc510

To use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses.

[rcooley25]

Thank You

[TaxGuyBill]

I don't know if anybody actually does this the way we are supposed to, but the way I read the legal gibberish, switching from the Standard Mileage Rate to Actual Expenses gets a bit funky.

By using the Standard Mileage Rate in the first year, you have elected out of MACRS (§168).  And you aren't allowed back in.  So you should actually then depreciate it using §167, which means you depreciate it over the "useful life" (I think pre-MARCS said it was 3 years, rather than the 5 year the Recovery Period) and using a "Salvage Value".

But again, I don't know if anybody actually does that.  😂

[rcooley25]

I agree. It was always  my thought at least until today, that once you started taking actual expenses or standard mileage rate that youy had to stay with what ever method you started with the first year.

[TaxGuyBill]

That is a common thought, but as was mentioned, if you start with the Standard, you can go back and forth as much as you want.  I was just pointing out one potential complexity of doing it.

[sjrcpa]

We have a lot of bleeping the last two days.

For the most part I can't even figure out what the word was.

Someone turned up the censor dial.

[TaxGuyBill]

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@sjrcpa wrote:

We have a lot of bleeping the last two days.

For the most part I can't even figure out what the word was.

Someone turned up the censor dial.

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Yeah, I just saw that and edited my post to put it back that way it was.  Maybe I accidentally put an extra "t" behind the "but" and it went crazy?