Worksheet 41-2 Fractional Rate Worksheet for Self-Employed
43.5 MACRS Rates for Cars, Trucks, and Vans
Business autos, trucks, and vans are technically in a fi ve-year MACRS class (42.4), but because of the half-year or mid-quarter convention, the MACRS recovery period for fi ve-year property is six years, and because of the annual deduction ceilings (43.4), the actual writeoff period may be years longer.
Note: If bonus depreciation is extended to 2015 by Congress, the higher fi rst-year deduction ceilings shown in Table 43-2 and Table 43-3 below will apply to new vehicles placed in service in 2015 that are used over 50% for business. See the e-Supplement at jklasser.com for an update.
Accelerated MACRS rate allowed only if business use in the fi rst year exceeds 50%. To use accelerated MACRS rates, you must meet the more-than-50%-business-use test (43.3) in the year the vehicle is placed in business service. Generally, the accelerated MACRS rate is based on the 200% declining balance method, but as shown on Table 43-4 (half-year convention) or Table 43-5 (mid-quarter convention), a 150% declining balance rate may be elected, which may be advantageous when you are subject to the alternative minimum tax (23.2).
Th e deduction allowed using accelerated MACRS rates applies only to the extent it does not exceed the annual ceiling. As noted earlier, Congress may extend bonus depreciation to 2015, which would increase the fi rst-year deduction ceilings shown in Table 43-2 and Table 43-3 for vehicles purchased new and placed in service in 2015. Th e limits from the tables must be further reduced for personal use.
Filing Tip
Capital Improvements
A capital improvement to a business vehicle is depreciable under MACRS in the year the im- provement is made. Th e MACRS deductions for the improvement and the vehicle are considered as a unit for purposes of applying the limits on the annual MACRS depreciation deduction.
43.5 • MACRS Rates for Cars, Trucks, and Vans
If you do not meet the more-than-50%-business-use test in the year the vehicle is placed in service, you must compute your depreciation deductions using the straight-line rates shown in 43.6, subject to the annual depreciation limit.
Deductions for later years in the recovery period. For years two through six of the recovery period, the MACRS rate from Table 43-4 or Table 43-5 is used unless business use for a year falls to 50% or less (43.10). However, the deduction fi gured under the MACRS table is allowed only if it does not exceed the annual depreciation ceiling (43.4) shown in Table 43-2 or Table 43-3; see the Bill Johnston Example at the end of this section. See below for details on using the MACRS tables.
Caution: If you used the 100% bonus depreciation rule for vehicles placed in service after September 8, 2010, and before 2012 to increase your fi rst-year depreciation deduction, you must use an IRS safe harbor to fi gure your deductions starting in the second recovery year, as explained in Revenue Procedure 2011-26.
Deduction for year of disposition. If you dispose of your vehicle before the end of the six- year MACRS recovery period, a partial-year deduction is allowed for the year of disposition under the half-year or mid-quarter convention (43.7).
Use of vehicle after end of recovery period. If you continue to use the vehicle for business after the end of the recovery period, and the annual deduction ceilings prevented you from deduct- ing your full unadjusted basis during the recovery period, you generally may deduct depreciation in the succeeding years up to the annual ceiling (43.8).
Business use falls to 50% or less after the fi rst year. What if business use exceeds 50%
in the year the vehicle is placed in service but in a later year within the recovery period business use drops to 50% or lower? In that case, the right to use accelerated MACRS (200% or 150%
declining balance method) terminates. You must use the straight-line method and recapture the benefi t of the accelerated deductions claimed for the prior years (43.10).
Straight-line election for vehicle if business use exceeds 50%. If business use of your vehicle exceeds 50% in the year you place it in service, you may elect to write off your cost under the straight-line method (43.6) instead of using the regular MACRS 200% declining balance method. Th e straight-line deduction is limited by the annual ceilings shown in Tables 43-2 and 43-3. By electing straight-line depreciation, you avoid the recapture of excess MACRS deductions if business use drops to 50% or less in a later year (43.10). If the election is made, you must also use the straight-line method for all other fi ve-year property placed in service during the same year as the vehicle.
Electing 150% declining balance method. Depreciation rates under the half-year and mid- quarter conventions are generally based on the 200% declining balance method. You may instead make an irrevocable election to apply the 150% declining balance method. Th e 150% method may be advantageous when you are subject to the alternative minimum tax. For alternative minimum tax (AMT) purposes (23.2), vehicle depreciation is based on the 150% declining balance method unless you use the straight-line method for regular tax purposes. If you are subject to AMT and use the 150% declining balance method instead of the 200% declining balance method for regular tax purposes, you do not have to report an AMT adjustment on Form 6251.
An election to use the 150% declining balance method is irrevocable and must be applied to all depreciable assets placed in service in the same year, except for nonresidential real and residential rental property.
MACRS Tables Applying the Half-Year Convention or Mid-Quarter Convention if Business Use Exceeds 50%
For the year you place the vehicle in service and the year (within the recovery period) you dispose of the property, you may not claim a full year’s worth of depreciation. Th e deduction is limited by either the half-year convention or the mid-quarter convention, depending on the month in which the vehicle was placed in service and the other business assets, if any, placed in service during that year.
Th e applicable convention determines the rate table you will use to fi gure your depreciation deduction for the entire six-year recovery period, assuming that your business use each year exceeds 50%. Th e half-year and mid-quarter convention rates shown in Table 43-4 or Table 43-5 refl ect the 200% or 150% declining balance method, with a switch to the straight-line method when that method provides a larger deduction; the switch to straight line is built into the tables.
MACRS Rates for Cars, Trucks, and Vans • 43.5 Rate applied to unadjusted basis. For each year in the recovery period, the rate from
MACRS Table 43-4 or Table 43-5 is applied against the business use percentage of your unadjusted basis for the vehicle. Th e deduction fi gured using the table rate may be claimed to the extent that it does not exceed the annual depreciation ceiling (Table 43-2 or Table 43-3); see the Bill Johnston Example on the next page. Investment use may be added to the business use percentage, but keep in mind that the MACRS table may be used only if business use by itself exceeds 50% (43.3).
Unadjusted basis is your cost minus any fi rst-year expensing deduction as well as any special fi rst-year bonus depreciation (for a vehicle placed into service after September 10, 2001, and before January 1, 2005, and during 2008 through 2014, and 2015 if extended). Th e basis reduction for bonus depreciation applies if you were eligible for the special allowance (vehicle purchased new and used over 50% for business) even if you did not claim it, unless on your return you “elected out”
of the special allowance for the vehicle and all other fi ve-year property placed in service during the same year.
Basis for vehicle converted from personal to business use. Th e basis for depreciation is the lower of the fair market value of the vehicle at the time of conversion or its adjusted basis, which is your original cost plus any substantial improvements and minus any deductible casualty losses or diesel fuel tax credit claimed for the vehicle. In most cases, the value of the vehicle will be lower than adjusted basis, and thus the value will be your depreciable basis. For a vehicle con- verted to business use in 2015, the MACRS rate is applied to basis allocated to business travel.
Unless you have mileage records for the entire year, you should base your business-use percentage on driving after the conversion. For example, in April 2015, you started to use your car for business and in the last nine months of the year you drove 10,000 miles, 8,000 of which were for business.
Th is business percentage of 80% is multiplied by the fraction 9/12 (months used for business di- vided by 12) to give you a business-use percentage for the year of 60% (9/12 of 80%).
Deter mining whether the half-year convention or mid-quarter convention ap- plies. If you bought a vehicle for use in your business in 2015, and it was the only business equip- ment placed in service during the year, then the half-year convention applies, unless you bought the vehicle in the last quarter of 2015 (October, November, or December). Under the half-year convention, the vehicle is treated as if it were placed in service in the middle of the year. Use Table 43-4 below to determine your deduction under the half-year convention.
If the only business equipment bought in 2015 was a vehicle bought in the last quarter (October, November, or December), the mid-quarter convention applies. Under Table 43-5 for the mid-quarter convention, a 5% rate applies under the 200% declining balance method for a vehicle purchased in the fourth quarter, subject to the deduction ceiling in 2015 (Table 43-2 or Table 43-3).
If you bought other business equipment in addition to the vehicle, you must consider the total cost basis of property placed in service during the last quarter of 2015. If the total bases of such acquisitions (other than realty) exceed 40% of the total bases of all property placed in service during the year, then a mid-quarter rate applies to all of the property (other than realty).
Th e mid-quarter rate for each asset then depends on the quarter the asset was placed in service, and that quarter determines the mid-quarter rates for each year of the recovery period; see Table 43-5. If the 40% test is not met, then the half-year convention (Table 43-4) applies to all the property acquisitions.
Deduction from MACRS Tables Cannot Exceed Annual Ceiling
If the deduction fi gured under the half-year or mid-quarter convention MACRS table (Table 43-4 or 43-5), or the straight-line table (Table 43-6 or 43-7), exceeds the annual deduction ceiling (Table 43-2 or 43-3), your deduction is limited to the annual ceiling, reduced by the percentage of your personal use; see the Bill Johnston Example below.
Keep in mind that if you were eligible for the special fi rst-year depreciation allowance (bonus depreciation) for a vehicle placed in service after September 10, 2001, and before January 1, 2005 and during 2008 through 2014 (or 2015 if bonus depreciation is extended), basis for MACRS purposes is reduced by the special allowance unless you elected on your return not to claim it.
If you used bonus depreciation for a vehicle placed in service after September 8, 2010 and before 2012, you cannot claim any deduction in years two through six unless you use an IRS safe harbor explained in Revenue Procedure 2011-26.
Law Alert
Bonus Depreciation May be Extended for 2015
For vehicles purchased new and used over 50%
for business in 2015, the fi rst-year dollar limit in Tables 43-2 and 43-3 will be increased if Congress passes legislation extending bonus depreciation; see the e-Supplement at jklasser.
com for an update.
43.5 • MACRS Rates for Cars, Trucks, and Vans
EXAMPLE
On May 3, 2011, Bill Johnston placed in service a new car that cost $20,000, which he used 100% for business for the rest of 2011. He did not claim fi rst-year expensing and
“elected out” of bonus depreciation. Bill continued to use the car 100% for business through 2014. In 2015 and 2016, he uses it 75% of the time for business. Here is Bill’s depreciation schedule for the six-year recovery period, using the 200% declining balance rate as limited by the annual ceilings.
For years after 2016, Bill will be able to deduct his “unrecovered basis,” but the amount of unrecovered basis is fi gured as if there had been 100% business use during the entire six-year recovery period (43.8).
Year Deduction from MACRS
(Table 43-4) Annual ceiling
(Table 43-2) Allowable deduction
2011 $ 4,000 (20% × $20,000) $ 3,060 $ 3,060
2012 6,400 (32% × $20,000) 4,900 4,900
2013 3,840 (19.20% × $20,000) 2,950 2,950
2014 2,304 (11.52% × $20,000) 1,775 1,775
2015 1,728 (11.52% × $20,000) × 75%) 1,331 ($1,775 × 75%) 1,331
2016* 864 (5.76% × $20,000 × 75%) 1,331 864
*Note that for the fi rst fi ve years (2011 – 2015), the allowable deduction is limited to the annual ceiling but for year six (2016), the deduction is based on the MACRS rate table because $864 (5.76%
× $20,000 x 75% business use) is less than the $1,331 annual ceiling ($1,775 x 75% business use).
Table 43-2 Maximum Depreciation Deduction for Cars
(Must Be Reduced for Personal Use) Date Placed In
Service 1st Year 2nd Year 3rd Year 4th and Later Years
2015 $ 11,1601 $ 5,100 $ 3,050 $ 1,875
2012 -2014 11,1602 5,100 3,050 1,875
2010 and 2011 11,0603 4,900 2,950 1,775
2008 or 2009 10,9604 4,800 2,850 1,775
2007 3,060 4,900 2,850 1,775
1 For 2015, the $11,160 limit applies to a qualifying car only if bonus depreciation is extended to 2015 by Congress; see the e-Supplement at jklasser.com for an update. Th e limit is $3,160 if bonus depreciation is not extended, or if it is extended but the car does not qualify for the bonus allowance, or if you elect not to claim the allowance.
2 $3,160 if the car does not qualify for the bonus allowance, or if you elect not to claim the allowance.
3 $3,060 if the car does not qualify for the bonus allowance, or if you elect not to claim the allowance.
4 $2,960 if the car does not qualify for the bonus allowance or if you elect not to claim any allowance.
Table 43-3 Maximum Depreciation Deduction for Trucks and Vans
(Must Be Reduced for Personal Use) Date Placed In
Service 1st Year 2nd Year 3rd Year 4th and Later Years
2015 $11,4601 $5,600 $3,350 $1,975
2014 11,4602 5,500 3,350 1,975
2013 11,3603 5,400 3,250 1,975
2012 11,3603 5,300 3,150 1,875
2011 11,2604 5,200 3,150 1,875
2010 11,1605 5,100 3,050 1,875
2009 11,0606 4,900 2,950 1,775
2008 11,1605 5,100 3,050 1,875
2007 3,260* 5,200 3,050 1,875
1 For 2015, the $11,460 limit applies to a qualifying truck/van only if bonus depreciation is extended to 2015 by Congress; see the e-Supplement at jklasser.com for an update. Th e limit is $3,460 if bonus depreciation is not extended, or if it is extended but the vehicle does not qualify for the bonus allowance, or if you elect not to claim the allowance.
2 $3,460 if the vehicle does not qualify for the bonus allowance, or if you do not elect to claim bonus depreciation.
3 $3,360 if the vehicle does not qualify for the bonus allowance, or if you elect not to claim the allowance.
4 $3,260 if the vehicle does not qualify for the bonus allowance, or if you elect not to claim the allowance.
5$3,160 if the vehicle does not qualify for the bonus allowance, or if you elect not to claim the allowance.
6$3,060 if the vehicle does not qualify for the bonus allowance or if you elect not to claim the allowance.
Straight-Line Method • 43.6
Table 43-4 MACRS Deduction: Half-Year Convention
Year— 200% Rate 150% Rate
1 20.00% 15.00%
2 32.00 25.50
3 19.20 17.85
4 11.52 16.66
5 11.52 16.66
6 5.76 8.33
Table 43-5 MACRS Deduction: Mid-Quarter Convention
Placed in service in—
Year— First Quarter Second Quarter Third Quarter Fourth Quarter 200% Rate 150% Rate 200% Rate 150% Rate 200% Rate 150% Rate 200% Rate 150% Rate
1 35.00% 26.25% 25.00% 18.75% 15.00% 11.25% 5.00% 3.75%
2 26.00 22.13 30.00 24.38 34.00 26.63 38.00 28.88
3 15.60 16.52 18.00 17.06 20.40 18.64 22.80 20.21
4 11.01 16.52 11.37 16.76 12.24 16.56 13.68 16.40
5 11.01 16.52 11.37 16.76 11.30 16.57 10.94 16.41
6 1.38 2.06 4.26 6.29 7.06 10.35 9.58 14.35