The special depreciation allowance is a deduction equal to 30% (or 50%, depending on when you acquired the property) of the depreciable basis of qualified property. If your car qualifies for this deduction, you must reduce the car's adjusted basis by the amount of the allowance, unless you elect not to claim the allowance, as discussed later. You figure the amount of the special depreciation allowance after any section 179 deduction you choose to claim, but before figuring your regular depreciation deduction under MACRS.
For a car that is qualified property purchased before May 6, 2003, the allowance is a deduction equal to 30% of the car's depreciable basis. For a car that is qualified property purchased after May 5, 2003, the allowance is a deduction equal to 50% of the car's depreciable basis.
You can claim the special depreciation allowance only for the year the qualified property is placed in service.
Qualified property. Qualified property includes a car (See Car defined earlier, under Actual Car Expenses.) that meets all of the following requirements.
You bought the car new after September 10, 2001 (after May 5, 2003, to be eligible for the 50% special depreciation allowance).
You placed the car in service for business in 2003, and
You used the car more than 50% in a qualified business use.
For more information on other depreciable property that may qualify for the special depreciation allowance, see Publication 946.
Example. Bob bought a new car in June 2003 for $20,000 and placed it in service immediately, using it 75% for business. Bob's car is qualified property.
Bob chooses not to take a section 179 deduction for the car. Bob first must figure the car's depreciable basis, which is $15,000 ($20,000 × 75%). He then figures the special depreciation allowance of $7,500 ($15,000 × 50%).
The remaining depreciable basis of $7,500 ($15,000 - $7,500) is depreciated using MACRS (200% declining balance method, half-year convention) and results in a deduction of $1,500 ($7,500 × 20%), for a total depreciation deduction for 2003 of $9,000 ($7,500 + $1,500). However, Bob's depreciation deduction is limited to $8,033 ($10,710 × 75%).
Depreciation limit. The general limit on your depreciation deduction for a car purchased after May 5, 2003, is $10,710. It is $11,010 for a truck or van and $32,030 for an electric car.
However, if you use a car less than 100% in your business or work, the general limit must be reduced by multiplying the limit by the percentage of business and investment use during the year.
For cars that do not qualify for (or for which you choose not to claim) the special depreciation allowance, the limit is $3,060 ($3,360 for trucks and vans, $9,080 for electric cars). See Depreciation Limits.
Election not to claim the special depreciation allowance. You can elect not to claim the special depreciation allowance for a car that is qualified property. For a car purchased after May 5, 2003, you can elect to claim the 30% allowance instead of the 50% allowance, or not to deduct any special depreciation allowance at all.
To make an election, attach a statement to your timely filed return (including extensions) indicating the class of property for which you are making the election and that, for such class:
You are electing not to claim the 30% special allowance for qualified property acquired before May 6, 2003,
You are electing to claim the 30% special allowance instead of the 50% special allowance for qualified property acquired after May 5, 2003, or
You are electing not to claim any special allowance for qualified property acquired after May 5, 2003.
If you elect not to claim the special depreciation allowance or to claim the 30% allowance, rather than the 50% allowance, for a car that is qualified property, the election also applies to any other 5-year property placed in service during the same year.
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Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. |
When to make election. Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service.
However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Attach the election statement to the amended return. On the amended return, write "Filed pursuant to section 301.9100-2."
Information courtesy of the Internal Revenue Service.
