If you are claiming depreciation and actual expenses with your vehicle, it can be quite complicated. This article is designed to help you understand how depreciation works.
Before we get started, it’s very important to know that even if you are claiming depreciation and expenses, you still need a mileage log!
How Vehicle Depreciation Works
Imagine you purchased a new vehicle thinking you’ll save money by writing off depreciation over the next few years. While this may be true, it’s not the simple deduction you think it is. And worse, it’s probably not the biggest deduction available to you!
Before 2011, you could claim up to $11,060 of depreciation on a new car in the first year. Now, it’s nowhere near as sweet:
Say you purchased a new car for $41,000 in June, 2014. No matter how expensive the vehicle, your maximum depreciation in the first year (2014) is $3,160.
You would take $5,100 of depreciation in 2015; $3,050 in 2016; and $1,875 in 2017 and subsequent years until the car is fully depreciated (or disposed of).
Thus, a $41,000 car would take about 19 years to fully depreciate!