Depreciation of the Value of Cars

Depreciating the value of a car helps allocate its cost over several years.

Internal Revenue Service (IRS) rules and accounting principles allow you to depreciate a car you own and operate in business activities. If you own a company, you will record depreciation expense in the income statement.

Depreciation Defined

Depreciation is a financial and tax practice allowing you to recover, or charge off, a car's value over several periods. The IRS limits car depreciation periods to five years. A car is a long-term or fixed asset, meaning you will use or operate it for more than a year.

Car Value Depreciation

Depreciating a car helps lower your taxable income, even though you do not pay for depreciation expense. As of 2010, depreciation limits for passenger cars were $3,060, $4,900, $2,950 and $1,775 for the first, second, third and subsequent years, respectively.

Other Considerations

There are two types of car depreciation methods: accelerated and straight-line. With an accelerated method, such as the modified asset cost recovery system (MACRS), you record higher depreciation amounts in earlier years. Depreciation expense is the same every year with a straight-line procedure.

References

• A/N Group, Inc.: Auto and Vehicle Tables
• Internal Revenue Service: Transportation