If a an auto used in business is fully depreciated the first year of use, via Section 179 deduction, but no other expenses can they still claim mileage in that year and additional years and not actual expense?
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No - I presume when you say mileage, you mean the standard mileage rate.
See Rev Proc 2019-46 -
I would be hesitant to claim the mileage deduction in the same year I claimed a Section 179 on the vehicle. Not sure about year two though...I hope someone will help clarify that issue as I will be up against that one in 2022.Comment
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Originally posted by sdarave View Post
There is nothing to clarify; the answer was given above. In order to use the Standard Mileage Rate for a vehicle, it MUST be used in the first year. If you use Actual Expenses in the first year, you can NOT use the Standard Mileage Rate for that vehicle in ANY year.Comment
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This generally true, but not in all cases.Originally posted by TaxGuyBill View Post
See TheTaxBook "Standard Mileage Rate vs. Actual Expenses" section. The answer about Sec 179 is also given here. The language comes almost word for word from the Rev Proc that NYEA mentioned.
If you have the foresight to use straight line depreciation in the first year, you could switch from actual to standard mileage in a later year. But of course that is not what most people do.Who cannot use the standard mileage rate method? The standard mileage rate method cannot be used if the taxpayer:- [...]
- Claimed a depreciation deduction for the automobile using any method other than straight-line depreciation over its estimated useful life.
- Claimed a Section 179 deduction on the vehicle.
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- Claimed a special depreciation allowance on the vehicle.
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Last edited by Rapid Robert; 03-06-2021, 12:24 PM."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe HowardComment
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Originally posted by Rapid Robert View Post
You stopped your citation too soon. Read the next sentence.
It is also disallowed if you use MACRS. MACRS includes Straight-line depreciation, and you are required to use MACRS except for certain situations (such as using the Standard Mileage Rate).
So if you claim straight-line depreciation the first year, that is still part of MACRS, which would disallow the Standard Mileage Rate in future years.Comment
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I'm curious where you get support for SL depreciation being part of MACRS given that the "A" stands for accelerated and SL is not accelerated.Originally posted by TaxGuyBill View Post
From the Rev Proc,
"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)."
If the taxpayer by using standard mileage has elected out of MACRS and as a result must use SL depreciation in the future, doesn't that prove that SL is not unique to MACRS? Otherwise how could they be using it if they elected out? Why can't the taxpayer elected out of MACRS pursuant to §168(f)(1) even without using standard mileage? They could use a method not based on years of life by applying the same per-mile depreciation as applies under standard mileage rate.
Note: I have seen this topic come up repeatedly over the years in various forums, and no one seems to ever have a slam-dunk conclusion either way. It rarely comes up in real life, because as I said earlier, if someone is going to use actual cost in the first year in service, they are almost never going to use SL method anyway. So maybe it is a court case waiting to happen (or maybe someone already knows of a court case, I don't).
Last edited by Rapid Robert; 03-06-2021, 09:38 PM."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe HowardComment
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Originally posted by Rapid Robert View Post
MACRS means §168. §168(b)(3) shows that Straight Line is an option (D says you can choose to use SL for pretty much any property).
Yes, SL is also part of §167. However, Reg §1.168-1 says unless §168(f) applies, that §168 is mandatory.
If you read through §168(f), it only allows certain situations to elect out of §168: (1) a method not measured in years (such as the Standard Mileage Rate), (2) Utility property, (3) Films, (4) Sound recordings and (5) Churning transactions. If it doesn't meet any of those things, you can't use (f) to elect out.
Last edited by TaxGuyBill; 03-06-2021, 09:48 PM.Comment
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I agree with TaxGuyBill with a caveat.
Straight Line Depreciation over the useful life of a vehicle is not the same as MACRS Straight Line Recovery over its ADS Class Life. Not that it makes much of a difference, and not the the IRS notices this, but If you use Cost Recovery (even Straight Line Cost Recovery) you are not allowed to use the standard mileage rate.DougComment
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I have been preparing tax returns for nearly 13 years, and I think I'm pretty good at it---But I think I will always need and appreciate a mentor. Thank you all for your information, even though it wasn't my post.Comment
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Originally posted by dtlee View Post
I am unsure what you are referring to. Could you please explain what you mean by "Cost Recovery" (and why you are not allowed to use the Standard Mileage Rate afterwards)?Comment
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Unfortunately, I am drowning right now or I would spend more time on this.
We all know that MACRS stands for Modified Accelerated Cost Recovery System using one of four alternative methods with No Salvage Value. My understanding of the recovery concepts are:- Property Class: This is based on the Class Life of the property. Passenger Automobiles are all considered to be 5-Year Property having a Class life of more than 4 years but less than 10 years. Also, under the Alternative
- Depreciation System: This is the basic set of rules that must be applied to the property. The two systems in use under MACRS are the General Depreciation System (GDS) and the Alternate Depreciation System (ADS). All property within a given Property Class must be depreciated within the same system. Automobiles that are predominantly used for Business purposes may use either system. However, since they are considered to be Listed Property, if an automobile is used 50% or less in a qualified business use, they must use ADS.
- Recovery Period: This is the number of years for which the depreciation is computed and is based on the Property Class and Depreciation System. While some properties have a different recovery period for GDS and ADS, automobiles use the same 5-year recovery period for both Depreciation Systems.
- Method: Under MACRS, there are four Recovery Methods available. One of these is considered to be part of ADS and three are available under GDS.
Under ADS, the only method allowed is:- Straight Line Method over the ADS Recovery Period
- 200% Declining Balance method over the GDS Recovery Period
- 150% Declining Balance method over the GDS Recovery Period
- Straight Line Method over the GDS Recovery Period
Election of the Optional Standard Mileage Rate method excludes the vehicle from any of the above MACRS recovery methods.
Thus, if actual expenses are claimed, depreciation must be computed using the pre-1981 straight-line depreciation method. This method takes the current basis, subtracts a salvage value and divides this amount by the remaining useful life of the vehicle. In other words, for any year that the Regular Actual Expense method is used for a vehicle which used the Optional Standard Mileage Rate method, the amount of prior depreciation must be totaled based on either the mileage rate or any pre-1981 straight-line depreciation claimed and this amount must be subtracted from the vehicle’s basis to determine a new adjusted basis.Last edited by dtlee; 03-08-2021, 08:04 PM.DougComment
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Okay, I understand what you mean now, and we are on the same page. I think I had originally misread your original post.
Interestingly, I think the pre-ACRS "useful life" was 3 years.
I didn't think about using Salvage Value, but you are right, it is logical that would be needed. But on the occasion I've encountered this, I just stick with the software doing a 5 year Recovery Period with no salvage. :-)Comment
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I convinced myself a long time ago that I am the only tax preparer who does this.
You need to know the start of the year beginning basis (and you compute that by subtracting out the actual straight line depreciation taken or the depreciation component of the mileage rate (which my buddy Frank didn't even mention in Update class).
A number of years ago the IRS published the updated mileage rates and left this out, so I called the author and asked him. After he told me, they published another notice which had it.
I have never heard of the IRS questioning using MACRS Straight Line on a vehicle exempt from MACRS.
They haven't even published Publication 534 in recent years.
Cars seem to last a long longer than they did in the 1970s.Last edited by dtlee; 03-08-2021, 10:10 PM.DougComment
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Originally posted by dtlee View Post
Except for the Salvage, I pretty much do the same. I don't feel comfortable with 'inventing' a number for Salvage (I didn't start doing taxes until well after 1986), so I'm unlikely to start that.
But as I mentioned before, I got annoyed at needing to override the software from 5 years to 3 years, so I just let the software use 5 years now. :-)Comment
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