Question

Business vehicle and decreased business use after 6 years

Forum|Forum|1 year ago
March 18, 2025
1 reply
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I bought a new car in January 2018 for sole proprietor use, with >50% business use. I have been using the MACRS method (with half year convention) for depreciation every year. 2024 tax year represents my 7th year using the car. My sole proprietor business drives starting in 2024 represent only 13% of my business vehicle use. Questions:

1. Should I continue to report this vehicle as a business vehicle with 13% business use and claim the miniscule actual vehicle expense deductions (around $400)?

2. If I do this, I see on TurboTax that my depreciation method automatically shifts from "200DB" (200% declining balance?) as it has been in previous years, to "ALT" (alternate method). I see other drop-down options of Straight, prescribed ACRS, 200DB, 150 DB, or ALT. I take it that this ALT is what it should be?

3. Is this the best strategy, since I am still using it for business purposes, even though for much less than 50%?

4. The other option would be to convert to personal use, right? Would there be any benefit to doing this? What are the ramifications of doing this vs. sticking with continuing a small % of business use?

5. Am I correct in thinking that regardless of whether I choose to continue "business use" or convert to personal use, I will be paying back the tax breaks in the form of delayed recapture once I eventually sell the vehicle, right? I plan to keep the car for years and years, even if I eventually retire and shift to 0% business use. Thank you!

TurboTax Home & Biz Windows

PatriciaV

1) Since there is no minimum percentage of business use required to claim actual expenses for a business vehicle, you may wish to continue reporting this vehicle for your business.

2) Yes, TurboTax will adjust the depreciation calculations based on your change in business use. Note that if you claimed a Section 179 deduction in the year you first started using the vehicle for business, you may be subject to depreciation recapture because the business use dropped to 50% or less. Recapture is reported as ordinary income on Form 4797.

3) Every expense reduces your taxable business income.

4) If you would rather not track your vehicle expenses, converting the vehicle to personal use would eliminate the need to keep records. There is no impact on your taxable business income when you stop using a vehicle, other than a loss of the deduction.

5) Follow up to #2 above: If at the time you dispose/sell of the vehicle, it would have otherwise been depreciated fully (not considering an applicable 179 Deduction), then you should NOT be subject to Depreciation Recapture.

Additional Information:

IRS Pub 946 When Must You Recapture the Deduction?

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N

nancylinAuthor

Hi, PatriciaV,

Thank you so much!

To clarify your Section 179 deduction questions and comments...

I did claim that 179 deduction in 2018, my first year, but 2024 is my first year where I used it for <50% business use, and 2024 marks the 7th year of continued use.

1. So, I should have passed the 5 year vehicle recovery period, yes?

2. I should not see form 4797 for immediate depreciation recapture in my TurboTax forms for 2024, correct?

3. Can you clarify your last comment about being fully depreciated?

3a. When I sell/dispose of the car in another 5-10 years or more, would it be fully depreciated?

3b. And does your statement (about fully depreciated and not being subject to recapture) depend on whether or not I took the 179 deduction in 2018?

3c. Bottom line, basically, in my situation (I took the 179 and I have used it for biz use >50% for 6 years and will dispose of it after at least 10+ of continuing to claim it as a business expense, albeit very low % use and so still getting a tiny deduction every year), would I be subject to recapture way down the road?

I am assuming my tax breaks will come back to haunt me and catch up with me at some point in the future, no?

Thanks again for your prompt and great responses!