Get the most mileage out of your 1040: deducting car expenses, simplified - Finance - Column

Home Office Computing, Jan, 1993 by Linda Stern

Those figures are for cars used 100 percent in business. If there is partial business use, the luxury-car limits must be prorated by the same percentage. In the first year of depreciating a car that you use 60 percent for business, for example, you can't take more than $1,656, no matter how costly a car it is.

You can determine which depreciation method to use on the basis of your business-use percentage. If you use your car less than 50 percent for business, you are limited to a straight-line depreciation. If you use the car 50 percent or more in business, you can opt for an accelerated depreciation or Section 179 deduction.

BUY OR LEASE?

If you are considering getting a new car, you have to decide whether to lease it or buy it. The IRS has made this both an easier and a more difficult decision to make, according to Lee Czarapata, vice president of Runzheimer and Company, a management-consulting firm specializing in travel, based in Rochester, Wisconsin. More difficult, because the runaway tax benefits of leasing that existed in earlier years have been leveled, making the calculations between buying and leasing very narrow. Easier, because the tax implications of both have now gotten so similar, deciding which you prefer is a lifestyle choice and not a tax decision.

If you lease a car, you can write off the entire lease, which under other conditions might enable you to deduct a car much faster and more profitably on a lease than on a purchase. But the same luxury limits that cap depreciation for autos now apply to leases as well, so the playing field is more level than it used to be.

Czarapata recently compared the cost of buying a 1992 midsize car (and trading it in in the fourth year) with the cost of leasing the same car for four years. It came to a total cost of $11,408 for the purchase and $11,280 for the lease. "A negligible difference," concluded Czarapata. "A small move one way or the other could shift the picture into a different direction."

NEXT STEPS

This is hardly all you need to know about writing off your car; in this column, the best we can offer is a general overview. For instance, there's the question of what to do when you sell a car that's been fully or partially depreciated--yes, you may have to take a gain--and of how to start taking a mileage deduction once you've depreciated your car (you have to cut down the $0.28 figure by an amount that covers your depreciation).

If you are planning on getting a new car this year, it is worth paying an accountant to go over all the options with you. If you would rather dive into them yourself, order IRS Publication 917, Business Use of a Car and immerse yourself. Just remember, if you try to read it while you're sitting in traffic, that doesn't count as business use of the vehicle!