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1) Use the car for hire (such as a taxi), 2) Use two or more cars at the same time (as in fleet operations), 3) Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Methods of depreciation under Depreciation Deduction), 4) Claimed a section 179 deduction (dis- cussed later) on the car, 5) Claimed the special depreciation allow- ance (discussed later) on the car, 6) Claimed actual car expenses after 1997 for a car you leased, or 7) Are a rural mail carrier who received a qualified reimbursement. (See Rural mail carriers under Car Expenses, earlier.) Two or more cars, If you own two or more cars that are used for business at the same time, you cannot use the standard mileage rate forthe business use of any car. However, you may be able to deduct your actual expenses for operat- ing each of the cars in your business. See Actual Car Expenses, later, for information on how to figure your deduction. You are not using two or more cars for busi- ness at the same time if you alternate using (use at different times) the cars for business. The following examples illustrate the rules for when you can and cannot use the standard mileage rate for two or more cars. Example 1. Marcia, a salesperson, owns a car and a van that she alternates using for call- ing on her customers. She can use the standard mileage rate for the business mileage of the car and the van, Example 2. Tony uses his own pickup truck in his landscaping business. During the year, he traded in his old truck for a newer one. Tony can use the standard mileage rate for the business mileage of both the old and the new trucks. Example 3. Chris owns a repair shop and an insurance business, He uses his pickup truck for the repair shop and his car for the insurance business. No one else uses either the truck or the car for business purposes. Chris can use the standard mileage rate for the business use of the truck and the car. Example 4. Maureen owns a car and a van that are both used in her housecleaning busi- ness. Her employees use the van and she uses the car to travel to the various customers, Mau- reen cannot use the standard mileage rate for the car or the van, This is because both vehides are used in Maureen's business at the same time. She must use actual expenses for both vehicles, Interest If you are an employee, you cannot deduct any interest paid on a car loan. This applies even if you use the car 100% for busi- ness as an employee. However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). You cannot deduct the rest of the interest expense. Page 16 Chapter 4 Transportation 8 If you use a home equity loan to TIP purchase your car, you may be able to deduct the interest. See Publication 936, Home Mortgage Interest Deduction, for more information. Personal property taxes. If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal prop- erty taxes on motor vehicles. You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C, Schedule C-EZ, or Schedule F (Form 1040). If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). Parking fees and tolls. In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. (Parking fees that you pay to park your car at your place of work are nondeductible commuting ex- penses.) Sale, trade-in, or other disposition. If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. See Disposition of a Car, later, Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses, 8 If you qualify to use both methods, you TIP may want to figure your deduction both ways to see which gives you a larger deduction. Actual car expenses include: Depreciation Lease Licenses payments Gas Insurance Oil Garage rent Tolls Parking fees If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Continue to keep records, as explained later in chapter 5. Registration fees Repairs Tires Business and personal use. If you use your car for both business and personal purposes, you must divide your expenses between busi- ness and personal use. You can divide your expense based on the miles driven for each purpose. Example. You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use, You can claim only 60% (12,000 + 20,000) of the cost of oper~ ating your car as a business expense. Employer-provided vehicle. If you use a ve- hicle provided by your employer for business purposes, you can deduct your actual un- reimbursed car expenses. You cannot use the standard mileage rate. See Vehicle Provided by Your Employer in chapter 6. Interest on car loans. If you are an employee, you cannot deduct any interest paid on a car loan. This interest is treated as personal interest and is not deductible, If you are self-employed and use your car in that business, see Interest, earlier, under Standard Mileage Rate. Taxes paid on your car. If you are an em- ployee, you can deduct personal property taxes paid on your car if you itemize deductions. Enter the amount paid on line 7 of Schedule A (Form 1040). You cannot deduct sales taxes, even if you use your car 100% for business. Sales taxes are part of your car's basis and are recovered through depreciation. See Special Depreciation Allowance and Depreciation Deduction, later. Fines and collateral. You cannot deduct fines and collateral you pay for traffic violations. Casualty and theft losses. If your car is dam- aged, destroyed, or stolen, you may be able to deduct part of the loss that is not covered by insurance. See PubliCation 547, Casualties, Di- sasters, and Thefts, for information on deducting a loss on your car. Depreciation and section 179 deductions. Generally, the cast of a car, plus sales tax and improvements, is a capital expense. Because the benefits last longer than one year, you gen- erally cannot deduct a capital expense. How- ever, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Intema! Revenue Code), the special depreciation allowance, and deprecia- tion deductions. Depreciation allows you to re- cover the cost over more than one year by deducting part of it each year, The section 179 deduction, special depreciation allowance, and the depreciation deduction are discussed later. Generally, there are limits on these deduc~ tions. Special rules apply if you use your car 50% or less in your work or business. You can claim a section 179 deduction, the special depreciation allowance, and use a de- preciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service, If you claim either a section 179 deduction, the special depreciation allowance, or deprecia- tion using a method other than straight line for its estimated useful life in the year you first place a car in service, you cannot use the standard mileage rate on that car in any future year. Car defined. For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) that is made primarily for use on public streets, roads, and highways. Its unloaded gross vehicle weight (gross vehicle weight in the case of a truck or van) must not be more than 6,000 pounds. A car includes any part, component, or other item that is physically attached to it or is usually included in the purchase price. A car does not include: 1) An ambulance, hearse, or combination ambulance~hearse used directly in a busi- ness, or 2) A vehicle used directly in the business of transporting persons or property for payor hire. 3) A truck or van that is a qualified nonper- sana/ use vehicle. ~ Trucks ,and vans. For purposes of depreci- ation, the term "trucks and vans" refers to pas- senger automobiles that are built on a truck chassis, including minivans and sport utility ve- hicles (SUVs) that are bullt on a truck chassis. ~ L