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Weekly Lessons, created and written by Richard R. Hammar, J.D., LL.M., CPA, give you a basic legal overview of essential topics based on staff or volunteer positions within a church.

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Week of February 9

Car Expenses—Commuting

This Week's LessonWeek of February 16

Car Expenses: Standard Mileage or Actual?
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The amount of the section 179 deduction reduces your basis in your car. If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. The resulting amount is the basis in your car that you use to figure your depreciation deduction. Choosing a section 179 deduction can give you a larger total deduction (depreciation plus section 179 deduction) in the first year. Not choosing it can give you a larger depreciation deduction in later years.

If you want to take the section 179 deduction, you must make the choice in the tax year you both purchase the car and place it in service for business or work. Employees use Form 2106 to make this choice and report the section 179 deduction. All others use Form 4562. Make your choice by taking the deduction on the appropriate form and file it with your original tax return.

Depreciation deduction

If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. That is, you can deduct a certain amount each year as a recovery of your cost or other basis in the car. You cannot use the standard mileage rate if you decide to take a depreciation deduction in the year you first place the car in service.

You generally need to know the following things about the car you intend to depreciate: (1) your basis in the car, (2) the date you place the car in service, (3) the method of depreciation and recovery period you will use. Your basis in a car for figuring depreciation is generally its cost. This includes any amount you borrow or pay in cash, other property, or services. You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. Depreciation begins when the car is placed in service for use in your work or business or for the production of income. For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car.

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