Car Expenses If you use your car for business purposes, you may be able todeduct car expenses. You generally can use one of two methods tofigure your expenses: actual expenses or the standard mileage rate. Inthis publication, "car" includes a van, pickup, or panel truck. TaxTip: You may be entitled to a tax credit for an electric vehicle or adeduction from gross income for a part of the cost of a clean-fuelvehicle that you place in service during the year. The vehicle mustmeet certain requirements, and you do not have to use it in yourbusiness to qualify for the credit or the deduction. However, you mustreduce your basis for depreciation of the electric vehicle orclean-fuel vehicle property by the amount of the credit or deductionyou claim. See Depreciation Deduction, later, underActual Car Expenses. For more information on electric orclean-fuel vehicles, see chapter 15 of Publication 535. Standard Mileage Rate You may be able to use the standard mileage rate to figure thedeductible costs of operating your car for business purposes. For1999, the standard mileage rate is 32 1/2 cents amile for all business miles driven before April 1. The rate is31 cents a mile for business miles driven after March 31.This rate is adjusted periodically. Caution: If you can and do choose to use the standard mileage rate for ayear, you cannot deduct your actual car expenses for thatyear. These expenses include depreciation or lease payments,maintenance and repairs, gasoline (including gasoline taxes), oil,insurance, and vehicle registration fees. See Choosing thestandard mileage rate and Standard mileage rate notallowed, later. You generally can use the standard mileage rate whether or not youare reimbursed and whether or not any reimbursement is more or lessthan the amount figured using the standard mileage rate. See chapter 6for more information on reimbursements. Rural mail carriers.If you are a rural mail carrier, you may be able to treat theamount of qualified reimbursement you received as the amount of yourallowable expense. Because the qualified reimbursement is treated aspaid under an accountable plan, your employer should not include theamount of reimbursement in your income. And, since the reimbursementequals the expense, you have no deduction to report on your taxreturn. A "qualified reimbursement" is the amount of reimbursement youreceive that meets both of the following conditions. It is given as an equipment maintenance allowance (EMA) toemployees of the U.S. Postal Service. It is at the rate contained in the 1991 collectivebargaining agreement. Any later agreement cannot increase thequalified reimbursement amount by more than the rate ofinflation. See your employer for information on your reimbursement. Caution: If you are a rural mail carrier and received a qualifiedreimbursement, you cannot use the standard mileage rate. Choosing the standard mileage rate.If you want to use the standard mileage rate for a car you own, youmust choose to use it in the first year the car is available for usein your business. Then in later years, you can choose to use eitherthe standard mileage rate or actual expenses. If you want to use the standard mileage rate for a car you lease,you must use it for the entire lease period. For leases that began onor before December 31, 1997, the standard mileage rate must be usedfor the entire portion of the lease period (including renewals) thatis after that date. If you choose to use the standard mileage rate, you are consideredto have chosen not to use the depreciation methods discussed later.This is because the standard mileage rate includes an allowance fordepreciation. Also, you cannot claim the section 179 deduction(discussed later) if you use the standard mileage rate. If you changeto the actual expenses method in a later year, but before your car isconsidered fully depreciated, you have to estimate the remaininguseful life of the car and use straight line depreciation. See theexception in Methods of depreciation underDepreciation Deduction, later. Standard mileage rate not allowed.You cannot use the standard mileage rate if you: Use the car for hire (such as a taxi), Operate two or more cars at the same time (as in fleetoperations), Claimed a depreciation deduction using ACRS or MACRS(discussed later) in an earlier year, Claimed a section 179 deduction (discussed later) on thecar, Claimed actual car expenses after 1997 for a car you leased,or Are a rural mail carrier who received a qualifiedreimbursement. (See Rural mail carriers, earlier.) Two or more cars.If you own two or more cars that are used for business at the sametime, you cannot use the standard mileage rate for the business use ofany car. However, you may be able to deduct your actual expenses foroperating each of the cars in your business. See Actual CarExpenses for information on how to figure your deduction. You are not using two or more cars for business at thesame time if you alternate using (use at different times) the cars forbusiness. The following examples illustrate the rules for when you can andcannot use the standard mileage rate for two or more cars. Example 1.Marcia, a salesperson, owns a car and a van that she alternatesusing for calling on her customers. She can use the standard mileagerate for the business mileage of the car and the van. Example 2.Tony uses his own pickup truck in his landscaping business. Duringthe year, he traded in his old truck for a newer one. Tony can use thestandard mileage rate for the business mileage of both the old and thenew trucks. Example 3.Chris owns a repair shop and an insurance business. He uses hispickup truck for the repair shop and his car for the insurancebusiness. No one else uses either the truck or the car for businesspurposes. Chris can use the standard mileage rate for the business useof the truck and the car. Example 4.Maureen owns a car and a van that are both used in herhousecleaning business. Her employees use the van and she uses the carto travel to the various customers. Maureen cannot use the standardmileage rate for the car or the van. This is because both vehicles areused in Maureen's business at the same time. She must use actualexpenses for both vehicles. Interest.If you are an employee, you cannot deduct any interest paid on acar loan. This applies even if you use the car 100% for business as anemployee. However, if you are self-employed and use your car in yourbusiness, you can deduct that part of the interest expense thatrepresents your business use of the car. For example, if you use yourcar 60% for business, you can deduct 60% of the interest on Schedule C(Form 1040). You cannot deduct the rest of the interest expense. TaxTip: If you use a home equity loan to purchase your car, you may be ableto deduct the interest. See Publication 936, Home MortgageInterest Deduction, for more information. Personal property taxes.If you itemize your deductions on Schedule A (Form 1040), you candeduct on line 7 state and local personal property taxes on motorvehicles. You can take this deduction even if you use the standardmileage rate or if you do not use the car for business. If you are self-employed and use your car in your business, you candeduct the business part of state and local personal property taxes onmotor vehicles on Schedule C, Schedule C-EZ, or Schedule F (Form1040). If you itemize your deductions, you can include the remainderof your state and local personal property taxes on the car on ScheduleA (Form 1040). Parking fees and tolls.In addition to using the standard mileage rate, you can deduct anybusiness-related parking fees and tolls. (Parking fees that you pay topark your car at your place of work are nondeductible commutingexpenses.) Sale, trade-in, or other disposition.If you sell, trade in, or otherwise dispose of your car, you mayhave a gain or loss on the transaction or an adjustment to the basisof your new car. See Disposition of a Car, later. Actual Car Expenses If you do not choose to use the standard mileage rate, you may beable to deduct your actual car expenses. TaxTip: If you qualify to use both methods, figure your deduction both waysto see which gives you a larger deduction. Actual car expenses include the costs of: Depreciation  Lease payments Registration fees Licenses Insurance Repairs Gas Oil Tires Garage rent Parking fees Tolls If you have fully depreciated a car that you still use in yourbusiness, you can continue to claim your other actual car expenses.Continue to keep records, as explained later in chapter 5. Business and personal use.If you use your car for both business and personal purposes, youmust divide your expenses between business and personal use. You candivide based on the miles driven for each purpose. Example.You are a sales representative for a clothing firm and drive yourcar 20,000 miles during the year: 12,000 miles for business and 8,000miles for personal use. You can claim only 60% (12,000 20,000) of the cost of operating your car as a business expense. Employer-provided vehicle.If you use a vehicle provided by your employer for businesspurposes, you can deduct your actual unreimbursed car expenses. Youcannot use the standard mileage rate. See Vehicle Provided byYour Employer in chapter 6. Interest on car loans.If you are an employee, you cannot deduct any interest paid on acar loan. This interest is treated as personal interest and is notdeductible. If you are self-employed and use your car in thatbusiness, see Interest, earlier, under StandardMileage Rate. Taxes paid on your car.If you are an employee, you can deduct personal property taxes paidon your car if you itemize deductions. Enter the amount paid on line 7of Schedule A (Form 1040). You cannot deduct luxury or sales taxes, even if you use your car100% for business. Luxury and sales taxes are part of your car's basisand may be recovered through depreciation. See DepreciationDeduction, later. Fines and collateral.You cannot deduct fines and collateral you pay for trafficviolations. Casualty and theft losses.If your car is damaged, destroyed, or stolen, you may be able todeduct part of the loss that is not covered by insurance. SeePublication 547,Casualties, Disasters, and Thefts (Business andNonbusiness), for information on deducting a loss on your car. Depreciation.Generally, the cost of a car, plus sales tax, luxury tax, andimprovements, is a capital expense. Because the benefits last longerthan one year, you generally cannot deduct a capital expense. However,you can recover this cost by claiming a section 179 deduction (thededuction allowed by section 179 of the Internal Revenue Code) and/ora depreciation deduction. By using depreciation, you recover the costover more than one year by deducting part of it each year. The section179 deduction and the depreciation deduction are discussed later. Generally, there are limits on both of these deductions. Specialrules apply if you use your car 50% or less in your work or business. You can claim a section 179 deduction and use a depreciation methodother than straight line only if you do not use the standard mileagerate to figure your business-related car expenses in the year youfirst place a car in service. If you claim either a depreciationdeduction or a section 179 deduction in the year you first place a carin service, you cannot use the standard mileage rate on that car inany 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 publicstreets, roads, and highways. Its unloaded gross vehicle weight (grossvehicle weight in the case of a truck or van) must not be more than6,000 pounds. A car includes any part, component, or other item thatis physically attached to it or is traditionally included in thepurchase price. A car does not include: An ambulance, hearse, or combination ambulance-hearse useddirectly in a business, or A vehicle used directly in the business of transportingpersons or property for pay or hire. See Publication 946for more information on how to depreciate yourvehicle. Section 179 Deduction The section 179 deduction allows you to choose to treat part or allof the business cost of a car as a current expense rather than takingdepreciation deductions over a specified recovery period. TaxTip: Even though you may be able to claim a section 179 deduction, thelimit on total section 179 and depreciation deductions (discussedlater) may reduce or eliminate any benefit from claiming it. You can claim the section 179 deduction only in the year you placethe car in service. For this purpose, a car is placed in servicewhen it is ready and available for a specific use, whether intrade or business, the production of income, a tax-exempt activity, ora personal activity. Even if you are not using the property, it is inservice when it is ready and available for its specific use. A carfirst used for personal purposes cannot qualify for the deduction in alater year when its use changes to business. Example.In 1997 you bought a new car and placed it in service for personalpurposes. This year, you began to use it for business. Changing itsuse to business use does not qualify the cost of your car for asection 179 deduction this year. However, you can claim a depreciationdeduction for the business use of the car. See DepreciationDeduction, later. Limits.There are limits on: The total cost of property qualifying for a section 179deduction, and The total amount of the section 179 deduction plusthe depreciation deduction (discussed later). Limit on cost of qualifying property.Generally, you can choose to treat up to $19,000 of the cost ofqualifying property as a section 179 deduction in 1999. (The amountincreases each year up to 2003.) The yearly limit, however, depends onthe percentage of business use, and you must use the propertymore than 50% for business to claim any section 179deduction. Example.Peter purchased a car this year for $4,500 and he used it 60% forbusiness. The total cost of Peter's car that qualifies for the section179 deduction is $2,700 ($4,500 cost 60% business use). Butsee Limit on total section 179 and depreciation deductions,discussed next. Limit on total section 179 and depreciation deductions.Generally, the total amount of section 179 and depreciationdeductions that you can claim for a car that you place in service in1999 cannot be more than $3,060. The limit is reduced if your businessuse of the car is less than 100%. See Depreciation Limits,later, for more information. Example.Peter, in the previous example, had a car with a qualifying cost of$2,700 for his section 179 deduction. However, Peter is limited to atotal section 179 deduction plus depreciation deduction of $1,836($3,060 limit 60% business use). Cost of car.For purposes of the section 179deduction, the cost of the car does not include any amount figured byreference to any other property held by you at any time. For example,if you buy (for cash and a trade-in) a new car to use in yourbusiness, your cost for purposes of the section 179 deduction does notinclude your adjusted basis in the car you trade in for the new car. Basis of car.The amount of the section 179 deduction reduces your basis in yourcar. If you choose the section 179 deduction, you must reduce yourbasis in your car before you figure your depreciation deduction. Choosing a section 179 deduction can give you a larger totaldeduction (depreciation plus section 179 deduction) in the first year.Not choosing it can give you a larger depreciation deduction in lateryears. Example.On January 2, 1999, Stella bought a car for $12,000, includingsales tax, to use exclusively in her delivery business. She paid$9,000 cash and received $3,000 in trade for her old car (also used inher business). Her adjusted basis in her old car was $3,000. Only the $9,000 cash Stella paid qualifies for the section 179deduction. If she does not choose section 179, her basis fordepreciation is $12,000. The total of her section 179 and depreciationdeductions is limited to $3,060, the first year maximum. If she doesnot choose section 179, her depreciation deduction, using the MACRSmethod (discussed later), is $2,400 [$12,000 basis 20%(double declining balance rate)] from Table 3,explained later. When to choose.If you want to take the section 179 deduction, you must make thechoice in the tax year you both purchase the car and placeit in service for business or work. Employees use Form 2106 to makethis choice and report the section 179 deduction. All others use Form4562. Make your choice by taking the deduction on the appropriate formand file it with your original tax return. You cannot make the choiceon an amended tax return filed after the due date (includingextensions). If you timely filed your return for the year withoutmaking the election, you can still make the election by filing anamended return within six months of the due date of the return(excluding extensions). Attach the election to the amended return andwrite "Filed pursuant to section 301.9100-2" on theelection statement. File the amended return at the same address youfiled the original return. Once made, the choice can be changed onlywith the consent of the Internal Revenue Service (IRS). Reduction in business use.To be eligible to claim the section 179 deduction, you must useyour car more than 50% for business or work in the year you acquiredit. If your business use of the car is 50% or less in a later tax yearduring the recovery period, you have to include in income in thatlater year any excess depreciation. Any section 179 deduction claimedon the car is included in calculating the excess depreciation. Forinformation on this calculation, see Excess depreciationlater in this chapter under Car Used 50% or Less forBusiness. Dispositions.If you dispose of a car on which you had claimed the section 179deduction, the amount of that deduction is treated as a depreciationdeduction for recapture purposes. You treat any gain on thedisposition of the property as ordinary income up to the amount of thesection 179 deduction and any depreciation you claimed. Forinformation on the disposition of depreciable property, see chapter 3 of Publication 544,Sales and Other Dispositions of Assets. Depreciation Deduction If you use a car you own in your business, you can claim adepreciation deduction: that is, you can deduct a certain amount eachyear as a recovery of your cost or other basis in the car. You cannotuse the standard mileage rate if you decide to take a depreciationdeduction in the year you first place the car in service. You generally need to know the following three things about the caryou intend to depreciate. Your basis in the car. The date you place the car in service. The method of depreciation you will use. Basis.Your basis in the car for figuring depreciation is generally itscost. This includes any amount you pay in cash, in other property, orin services. Additional rules concerning basis are discussed later inthis chapter under Unadjusted basis. Placed in service.You generally place a car in service when it is available for usein your work or business, in the production of income, or in apersonal activity. Depreciation begins when the car is ready for usein your work or business or for the production of income. For purposes of computing depreciation, if you first start usingthe car only for personal use and later convert it to business use,you place the car in service on the date of conversion. Your basis isthe lesser of the fair market value or your adjusted basis in the caron the date of conversion. Car placed in service and disposed of in the same year.If you place a car in service and dispose of it in the same taxyear, you cannot claim any depreciation deduction for that car. Methods of depreciation.Generally, one depreciation system is available for cars: theModified Accelerated Cost Recovery System (MACRS). MACRS rules forcars are discussed later in this chapter. Exception.If you used the standard mileage rate in the first year of businessuse and change to the actual expenses method in a later year, youcannot depreciate your car under the MACRS rules. You must usestraight line depreciation over the estimated remaining useful life ofthe car. To figure depreciation under the straight line method, you mustreduce your basis in the car (but not below zero) by a set rate permile for all miles for which you used the standard mileage rate. Therate per mile varies depending on the year(s) you used the standardmileage rate. For the rate(s) to use, see Depreciation adjustmentwhen you used the standard mileage rate under Dispositionof a Car, later. This reduction of basis is in addition to those basis adjustmentsdescribed later under Unadjusted basis. You must use youradjusted basis in your car to figure your depreciation deduction. Foradditional information on the straight line method of depreciation,see Publication 534, Depreciating Property Placed in ServiceBefore 1987. Cars placed in service before 1987.If you are still depreciating a car you placed in service before1987, continue to follow the rules appropriate for that method. SeePublication 534 for more information. Percentage of business use.Generally, you must use your car more than 50% for qualifiedbusiness use (defined next) to qualify for the section 179 deductionand MACRS deduction. If your business use is 50% or less, you must usethe straight line method to depreciate your car. This is explainedlater under Car Used 50% or Less for Business. Qualified business use.A qualified business use is any use in your trade or business. Itdoes not include use for the production of income (investment use).However, you do combine your business and investment use to computeyour depreciation deduction for the tax year. Use of your car by another person.Do not treat any use of your car by another person as use in yourtrade or business unless that use meets one of the following threeconditions. It is directly connected with your business. It is properly reported by you as income to the other person(and, if you have to, you withhold tax on the income). It results in a payment of fair market rent. This includesany payment to you for the use of your car. Business use changes.If you used your car more than 50% in qualified business use in theyear you placed it in service, but 50% or less in a later year(including the year of disposition), you have to change to thestraight line method of depreciation. See Business use drops to50% or less in a later year under Car Used 50% or Less forBusiness, later. More-than-50%-use test.You meet this test for any tax year if you use your car more than50% in qualified business use. You must meet this test each year ofthe recovery period (6 years under MACRS) for your car. If you use your car for more than one purpose during the tax year,you must allocate the use to the various purposes. You do this on thebasis of mileage. Figure the percentage of qualified business use bydividing the number of miles you drive your car for business purposesduring the year by the total number of miles you drive the car duringthe year for any purpose. TaxTip: Property does not cease to be used more than 50% in qualifiedbusiness use by reason of a transfer at death. Change from personal to business use.If you change the use of a car from 100% personal use to businessuse during the tax year, you may not have mileage records for the timebefore the change to business use. In this case, you figure thepercentage of business use for the year as follows. Determine the percentage of business use for the periodfollowing the change. Do this by dividing business miles by totalmiles driven during that period. Multiply the percentage in (1) by a fraction. The numerator(top number) is the number of months the car is used for business andthe denominator (bottom number) is 12. Example.You use a car only for personal purposes during the first 6 monthsof the year. During the last 6 months of the year, you drive the car atotal of 15,000 miles of which 12,000 miles are for business. Thisgives you a business use percentage of 80% (12,000 15,000)for that period. Your business use for the year is 40% (80% 6/12). Limits.The amount you can claim for section 179 and depreciationdeductions may be limited. Maximum limits apply depending on the yearin which you placed your car in service. You have to adjust the limitsif you did not use the car exclusively for business. SeeDepreciation Limits, later. Unadjusted basis.You use your unadjusted basis to figure your depreciation using theMACRS depreciation chart explained later under ModifiedAccelerated Cost Recovery System (MACRS). Your unadjusted basisfor figuring depreciation is your original basis increased ordecreased by certain amounts. To figure your unadjusted basis, begin with your original basis inyour car, which generally is its cost. Cost includes sales and luxurytaxes, destination charges, and dealer preparation. Increase yourbasis by any substantial improvements you make to your car, such asadding air conditioning or a new engine. Decrease your basis by anydeductible casualty loss, section 179 deduction, diesel fuel taxcredit, gas guzzler tax, clean-fuel vehicle deduction, and qualifiedelectric vehicle credit. See Publication 535for more information onthe clean-fuel vehicle deduction, and the qualified electric vehiclecredit. Caution: If your business use later falls to 50% or less, you may have toinclude in your income any excess depreciation. See Car Used 50%or Less for Business, later, for more information. If you acquired the car by gift or inheritance, see Publication 551,Basis of Assets, for information on your basis in thecar. Improvements.A major improvement to a car is treated as a new item of 5-yearrecovery property. It is treated as placed in service in the year theimprovement is made. It does not matter how old the car is when theimprovement is added. Follow the same steps for depreciating theimprovement as you would for depreciating the original cost of thecar. However, you must treat the improvement and the car as a wholewhen applying the limits on the depreciation deductions. Your car'sdepreciation deduction for the year (plus the depreciation on anyimprovements) cannot be more than the depreciation limit that appliesfor that year. See Depreciation Limits, later. Effect of trade-in on basis.When you trade an old car for anew one, your original basis in the new car is generally your adjustedbasis in the old car plus any additional payment you make. Traded car used only for business.If you trade in a car that you used only in your business foranother car that will be used only in your business, your originalbasis in the new car is your adjusted basis in the old car, plus anyadditional amount you pay for the new car. Example 1.Paul trades in a car that has an adjusted basis of $3,000 for a newcar. In addition, he pays cash of $7,000 for the new car. His originalbasis of the new car is $10,000 (his $3,000 adjusted basis in the oldcar plus the $7,000 cash paid). Paul's unadjusted basis would be thesame unless he claims the section 179 deduction or has other increasesor decreases to his original basis. Example 2.In July 1996, Marcia purchased a car for $26,000 and placed it inservice for 100% use in her business. She did not claim a section 179deduction. Marcia's unadjusted basis for the car was $26,000. For 1996through 1998, Marcia figured her depreciation deduction using theMACRS chart for those years. In September 1999, Marcia traded that car in and paid $14,200 cashfor a new car to be used 100% in her business. Marcia is allowedone-half of the regular depreciation amount for 1999 for her old car.(See Disposition of a Car, later.) Marcia figures her original basis in the new car, $27,792, asfollows. Cost of old car $26,000   Less: Total depreciation allowed from 1996 through 1999 - 12,408   Adjusted basis of old car $13,592   Plus: Additional cost for new car + 14,200   Basis of new car $27,792   Traded car used partly in business.cheap hotel in AlbuferiaIf you trade in a car (that you acquired after June 18, 1984) thatyou used partly in your business for a new car that you will use inyour business, you must make a "trade-in" adjustment for thepersonal use of the old car. This adjustment has the effect ofreducing your basis in your old car, but not below zero, for purposesof figuring your depreciation deduction for the new car. (Thisadjustment is not used, however, when you determine the gain or losson the later disposition of the new car.) To figure the unadjusted basis of your new car for depreciation,first add to your adjusted basis in the old car any additional amountyou pay for the new car. Then subtract from that total the excess, ifany, of: The total of the amounts that would have been allowable asdepreciation during the tax years before the trade if 100% of the useof the car had been business and investment use, over The total of the amounts actually allowable as depreciationduring those years. Example 1.In March, Mark traded his 1995 van (placed in service in 1995) fora new 1999 model. He used the old van 75% for business use and he usedthe new van 75% for business use in 1999. Mark claimed actual expenses(including $8,494 depreciation expense) for the business use of theold van since 1995. He did not claim a section 179 deduction for theold or the new van. Mark paid $12,800 for the 1995 van in June 1995. He paid anadditional $9,800 when he acquired the 1999 van. Mark was allowed 1/2 of the depreciation deduction amount (which is includedin the $8,494 depreciation expense total) for his old van for 1999,the year of disposition, as explained later under Disposition ofa Car. Mark figures the unadjusted basis for depreciating his new van asshown next. Cost of old van $12,800 Less: Total depreciation allowed on the business cost of old van, $9,600 ($12,800 75%), from 1995-1999    - 8,494 Adjusted basis of old van $ 4,306 Plus: Add'l cost for new van    + 9,800 Basis of new van before trade-in adjustment $14,106 Trade-in adjustment: Depreciation at 100% business use:  1999-($12,800 .1152) 1/2 yr $ 737   (Limit: $1,775)  1998-12,800 .1152 1,475   (Limit: $1,775)  1997-12,800 .192 2,458   (Limit: $2,950)  1996-12,800 .32 4,096   (Limit: $4,900)  1995-12,800 .20         2,560   (Limit: $3,060) Total $11,326 Less: Actual depreciation allowed       - 8,494 Excess of 100% over actual $2,832 Less: Lesser of Excess amount ($2,832)  or Adjusted basis of old van($4,306)    - 2,832 Unadjusted basis of new van  for depreciation $11,274 Example 2.Rob paid $15,000 for a new car that he placed in service in 1996.He used it partly for business in 1996 (9,000 business miles of 15,000total miles), 1997 (12,000 business miles of 16,000 total miles), and1998 (14,400 miles of 18,000 total miles). He used the standardmileage rate in those years to claim the business use of his car. (SeeDepreciation adjustment when you used the standard mileage rateunder Disposition of a Car, later.) On January 2, 1999, Rob traded in this car and paid an additional$6,000 for his new car. Rob figures the unadjusted basis for his newcar as shown next. Cost of old car $15,000 Less: Total depreciation allowed:  1998-14,400 mi. .12 $1,728  1997-12,000 mi. .12 1,440  1996-9,000 mi. .12         1,080    - 4,248 Adjusted basis of old car $10,752 Plus: Additional cost for new car    + 6,000 Basis of new car before trade-in adjustment $16,752 Trade-in adjustment: Depreciation at 100% business use:  1998--18,000 mi. .12 $2,160  1997--16,000 mi. .12 1,920  1996--15,000 mi. .12         1,800 Total $5,880 Less: Actual depreciation allowed         4,248 Excess of 100% over actual $1,632 Less: Lesser of Excess amount ($1,632)  or Adjusted basis of old car($10,752)    - 1,632 Unadjusted basis of new car for depreciation $15,120 Modified Accelerated Cost Recovery System (MACRS).The Modified Accelerated Cost Recovery System (MACRS) is the namegiven to the tax rules for getting back (recovering) throughdepreciation deductions the cost of property used in a trade orbusiness or to produce income. The maximum amount you can deduct is limited, depending on the yearyou placed your car in service. See Depreciation Limits,later. Recovery period.Under MACRS, cars areclassified as 5-year property. You actually depreciate the cost of acar, truck, or van over a period of 6 calendar years. This is becauseyour car is generally treated as placed in service in the middle ofthe year and you claim depreciation for one-half of both the firstyear and the sixth year. Depreciation deduction for certain Indian reservationproperty.Shorter recovery periods are provided under MACRS for qualifiedIndian reservation property placed in service on Indian reservationsafter 1993 and before 2004. The recovery period that applies for abusiness-use car is 3 years instead of 5 years. However, thedepreciation limits, discussed later, will still apply. For more information on the qualifications for this shorterrecovery period and the percentages to use in figuring thedepreciation deduction, see chapter 3 of Publication 946. Depreciation methods.You can use one of the following three methods to depreciate yourcar. The 200% declining balance method (200% DB) over a 5-yearrecovery period that switches to the straight line method when thatmethod provides a greater deduction. The 150% declining balance method (150% DB) over a 5-yearrecovery period that switches to the straight line method when thatmethod provides a greater deduction. The straight line method (SL) over a 5-year recoveryperiod. TaxTip: If you use Table 3 (discussed later) to determine yourdepreciation rate for 1999, you do not need to determine in what yearyour deduction is greater using the straight line method. This isbecause the chart has the switch to the straight line method builtinto its rates. Before choosing a method, you may wish to consider the followingfacts. Using the straight line method provides equal yearlydeductions throughout the recovery period. Using the declining balance methods provides greaterdeductions during the earlier recovery years with the deductionsgenerally getting smaller each year. MACRS depreciation chart.A 1999 MACRS Depreciation Chart and instructions areincluded in this chapter as Table 3. Using this table willmake it easy for you to figure the 1999 depreciation deduction foryour car. A similar chart appears in the Instructions for Form2106. Caution: You may have to use the tables in Publication 946instead of usingthis MACRS Depreciation Chart. You must use the Depreciation Tables in Publication 946rather thanthe MACRS depreciation chart in this publication if any one of thefollowing three conditions applies to you. You file your return on a fiscal year basis. You file your return for a short tax year (less than 12months). During the year, all of the following conditions apply toyou. You placed some property in service from January throughSeptember. You placed some property in service from October throughDecember. Your basis in the property you placed in service fromOctober through December was more than 40% of your total bases in allproperty you placed in service during the year. Depreciation in future years.If you use the percentages from the chart, you must continue to usethem for the entire recovery period of your car. However, you cannotcontinue to use the chart if your basis in your car is adjustedbecause of a casualty. In that case, for the year of adjustment andthe remaining recovery period, figure the depreciation without thechart using your adjusted basis in the car at the end of the year ofadjustment and over the remaining recovery period. See How ToFigure the Deduction Without Using the Tables in chapter 3 ofPublication 946. TaxTip: In future years, do not use the chart from this publication.Instead, use the chart in the publication or the form instructions forthose future years. Disposition of car during recovery period.If you dispose of the car before the end of the recovery period,you are generally allowed a half year of depreciation in the year ofdisposition unless you purchased the car during the last quarter of ayear. See Depreciation deduction for the year of dispositionunder Disposition of a Car, later, for information onhow to figure the depreciation allowed in the year of disposition. How to use the 1999 chart.To figure your depreciation deduction for 1999, find the percentagein the column of the chart based on the date that you first placed thecar in service and the depreciation method that you are using.Multiply the unadjusted basis of your car (defined earlier) by thatpercentage to determine the amount of your depreciation deduction. Ifyou prefer to figure your depreciation deduction without the help ofthe chart, see Publication 946. Table 3. 1999 MACRS Depreciation Chart Caution: Your deduction cannot be more than the maximum depreciation limitfor cars. See Depreciation Limits, later. Example.Phil bought a used truck in February 1998 to use exclusively in hislandscape business. He paid $6,200 for the truck with no trade-in.Phil did not claim any section 179 deduction and he chose to use the200% DB method to get the largest depreciation deduction in the earlyyears. Phil used the MACRS depreciation chart in 1998 to find hispercentage. The unadjusted basis of his truck equals its cost becausePhil used it exclusively for business. He multiplied the unadjustedbasis of his truck, $6,200, by the percentage that applied, 20%, tofigure his 1998 depreciation deduction of $1,240. In 1999, Phil used the truck for personal purposes when he repairedhis father's cabin. His records show that the business use of histruck was 90% in 1999. Phil used Table 3 to find hispercentage. Reading down the first column for the date placed inservice and across to the 200% DB column, he locates his percentage,32%. He multiplies the unadjusted basis of his truck, $5,580 ($6,200cost 90% business use), by 32% to figure his 1999 depreciationdeduction of $1,786. Depreciation Limits There are limits on the amount you can deduct for depreciation ofyour car. (The section 179 deduction is treated as depreciation forpurposes of the limits.) The maximum amount you can deduct each yeardepends on the year you place the car in service. These limits areshown in the following table. Maximum Depreciation Limits for Cars Year PlacedIn Service 1st Year  2nd Year  3rd Year  4th & Later Years  1999 $3,060 $5,000 $2,950 $1,775  1998 3,160 5,000 2,950 1,775  1997 3,160 5,000 3,050 1,775  1995-1996 3,060 4,900 2,950 1,775  1994 2,960 4,700 2,850 1,675  1993 2,860 4,600 2,750 1,675  Exceptions for clean-fuel cars.There are two exceptions to the depreciation limits for cars. Theyare effective after August 5, 1997, for cars that run on clean fuel.Clean-fuel cars are discussed in chapter 15 of Publication 535.Theexceptions follow. Amounts you pay for retrofit parts and components to modifya car to run on clean fuel are not subject to the depreciation limiton cars. Only the cost of the car before modification is subject tothe limit. If you place a car in service after August 5, 1997, that wasproduced to run on electricity, your depreciation limit is increased.The amounts are shown in the following table. Maximum Depreciation Limits For Electric Cars Placed in Service After August 5, 1997 Year PlacedIn Service 1st Year  2nd Year  3rd Year  4th & Later Years  1999 $9,280  $14,900 $8,950 $5,325  1998 9,380  15,000 8,950 5,425  1997 9,480  15,100 9,050 5,425  Caution: The examples throughout this chapter illustrate gas-fueled cars.    Car used less than full year.The depreciation limits are not reduced if you use a car for lessthan a full year. This means that you do not reduce the limit when youeither place a car in service or dispose of a car during the year.However, the depreciation limits are reduced if you do not use the carexclusively for business and investment purposes. See Reductionfor personal use, later. Example.Marie purchased a car in June 1999 for $16,000 to use exclusivelyin her business. She does not claim the section 179 deduction and shechooses the 200% DB method of depreciation. Marie's depreciation (using the rate from Table 3) is$3,200 ($16,000 20%). However, the maximum amount she candeduct for depreciation (from the Maximum Depreciation Limits forCars table) is $3,060. (See Deductions in years after therecovery period, later.) Reduction for personal use.The depreciation limits arefurther reduced based on your percentage of personal use. If you use acar less than 100% in your business or work, you must determine thedepreciation deduction limit by multiplying the limit amount by thepercentage of business and investment use during the tax year. Example.In June 1999, Karl, an outside dental supply salesman, purchased acar for $25,400 to make sales calls in a territory that extends 200miles around his home base. He uses his car 85% for his business. Karldoes not claim the section 179 deduction and he chooses the 200% DBmethod to figure his depreciation deduction. In 1999, Karl computes his MACRS deduction to be $4,318[($25,400 85%) 20%]. However, Karl'sdeduction is limited to $2,601. This is the depreciation limit($3,060) multiplied by the business use percentage (85%). Karl continues to use his car 85% for business. Depreciation in thenext four years continues to be subject to deduction limits. Karlcomputes his depreciation limits for those years as follows.  Year  Limit x Business Use Depreciation  2000 $ 5,000 85%     $ 4,250    2001 2,950 85%     2,508    2002, 2003 1,775 85%     1,509    In 2004, Karl's MACRS deduction is $1,244 [($25,400 85%) 5.76%]. Since that amount is less than thedepreciation limit of $1,509 ($1,775 85%), Karl's depreciationdeduction for 2004 is $1,244. If Karl continues to use his car for business after 2004, he cancontinue to claim a depreciation deduction for his unrecovered basis.However, he cannot deduct more than $1,775 multiplied by his businessuse percentage. See Deductions in years after the recoveryperiod, later. Section 179 deduction.The section 179 deduction is treated as a depreciation deduction.If you place a car in service in 1999, use it only for business, andchoose the section 179 deduction, the combined section 179 anddepreciation deduction for that car for 1999 is limited to $3,060. Example.On September 4, 1999, Jack bought a used car for $6,000 and placedit in service. He used it 80% for his business and he chooses to takea section 179 deduction for the car. Before applying the limit, Jack figures his maximum section 179deduction to be $4,800. This is the cost of his qualifying property(up to the maximum $19,000 amount) multiplied by his business use($6,000 80%). Jack then figures that his section 179 deduction for 1999 islimited to $2,448 (80% of $3,060). He then has an unadjusted basis of$2,352 [($6,000 80%) - $2,448] for determininghis depreciation deduction. Since he has already reached the maximumlimit for 1999, Jack will use the unadjusted basis to figure hisdepreciation deduction for 2000. Deductions in years after the recovery period.Top-Hotel Reservierungen ToulouseIf the depreciation limits apply to your car, you may haveunrecovered basis in your car at the end of the recovery period. Ifyou continue to use your car for business, you can deduct thatunrecovered basis after the recovery period ends. Unrecovered basis.This is your cost or other basis in the car reduced by anyclean-fuel vehicle deduction, electric vehicle credit, anddepreciation and section 179 deductions that would have been allowableif you had used the car 100% for business and investment use. The recovery period.For cars placed in serviceafter 1986, your recovery period is 6 calendar years. For a 5-yearrecovery period, a part year's depreciation is allowed in the firstcalendar year, a full year's depreciation is allowed in each of thenext 4 calendar years, and a part year's depreciation is allowed inthe 6th calendar year. Your recovery period is the same whether you use MACRS, decliningbalance, or straight line depreciation. Under MACRS, you determineyour unrecovered basis in the 7th year after you placed the car inservice. How to treat unrecovered basis.If you continue to use your car for business after the recoveryperiod, you can claim a depreciation deduction for that business usein each succeeding tax year until you recover your full basis in thecar. The maximum amount you can deduct is determined by the date youplaced the car in service and your business-use percentage. Forexample, no deduction is allowed for a year you use your car 100% forpersonal purposes. Example.In May 1993, Bob bought and placed in service a car that he usedexclusively in his business. The car cost $28,600. Bob did not claim asection 179 deduction for the car. He continued to use the car 100% inhis business throughout the recovery period (1993 through 1998). Forthose years, Bob used the appropriate MACRS Depreciation Chartand Maximum Depreciation Limits for Cars table (asexplained earlier) to compute his depreciation deductions as shown inthe following table. MACRS MACRS Maximum Deprec.   Year  % Amount Limit   Allowed   '93 20.00  $5,720  $2,860  $ 2,860   '94 32.00  9,152  4,600  4,600   '95 19.20  5,491  2,750  2,750   '96 11.52  3,295  1,675  1,675   '97 11.52  3,295  1,675  1,675   '98 5.76  1,647  1,675  1,647  Total $15,235  $15,207  At the end of 1998, Bob had an unrecovered basis in the car of$13,393. This was the $28,600 original basis of his car less the$15,207 depreciation deductions allowed during the recovery period. Bob continued to use the car 100% for business in 1999. He canclaim a depreciation deduction of $1,675 for the year. If he continuesto use the car 100% for business in 2000 and later years, Bob candeduct the lesser of $1,675 or his remaining unrecovered basis in eachof those years until his deductions total the $11,718 unrecoveredbasis ($13,393 - $1,675 claimed in 1999). If Bob's business use of the car was less than 100% during anyyear, his depreciation deduction would be less than the maximum amountallowable for that year. However, in determining his unrecovered basisin the car, he would still reduce his original basis by the maximumamount allowable. Bob's unrecovered basis at the beginning of 1999would be $13,365 ($28,600 - $15,235) in this example. This istrue even if his actual depreciation deduction for any year was lessthan the maximum amount shown. Car Used 50% or Lessfor Business If you use your car 50% or less in qualified business use (definedearlier under Depreciation Deduction), the following twospecial rules apply. (For this purpose, "car" was defined earlierunder Actual Car Expenses.) You cannot take the section 179 deduction. You must figure depreciation using the straight line methodover a 5-year period. You must continue to use the straight linemethod even if your percentage of business use increases to more than50% in a later year. Instead of making the computation yourself, you can use column (c)of Table 3 to find the percentage to use. Example.On May 21, 1999, Dan bought a car for $15,000. He used it 40% forhis consulting business. Because he did not use the car more than 50%for business, Dan cannot take any section 179 deduction, and he mustuse the straight line method over a 5-year period to recover the costof his car. Dan deducts $600 in 1999. This is the lesser of: $600 [($15,000 cost 40% business use) 10% recovery percentage (from column (c), Table 3)],or $1,224 ($3,060 maximum limit 40% businessuse). Business use drops to 50% or less in a later year.If you use your car more than 50% in qualified business use in thetax year it is placed in service but the business use drops to 50% orless in a later year, you can no longer use an accelerateddepreciation method for that car. For the year the business use dropsto 50% or less and all later years in the recovery period, you mustuse the straight line depreciation method over a 5-year recoveryperiod. In addition, for the year your business use drops to 50% orless, you must determine and include in your gross income any excessdepreciation (discussed later). Example.In June 1996, you purchased a car for exclusive use in yourbusiness. You met the more-than-50%-use test for the first 3 years ofthe recovery period (1996 through 1998) but failed to meet it in thefourth year (1999). You determine your depreciation for 1999 using 20%(from column (c) of Table 3). You also will have todetermine and include in your gross income any excess depreciation,discussed next. Excess depreciation.You must include any excess depreciation in your gross income andadd it to your car's adjusted basis for the first tax year in whichyou do not use the car more than 50% in qualified business use. UseForm 4797, Sales of Business Property, to report the excess depreciation inyour gross income. Excess depreciation is: The amount of the depreciation deductions allowable for thecar (including any section 179 deduction claimed) for tax years inwhich you did not use the car more than 50% in qualified business use,minus The amount of the depreciation deductions that would havebeen allowable for those years if you had used the car morethan 50% in qualified business use for the year you placed it inservice. Example.On June 25, 1996, you bought a car for $11,000 and placed it inservice. You did not claim the section 179 deduction. You used the carexclusively in qualified business use for 1996, 1997, and 1998. Forthose years, you used the appropriate MACRS Depreciation Chartto figure depreciation deductions totaling $7,832 ($2,200 for 1996,$3,520 for 1997, and $2,112 for 1998) under the 200% DB method. During 1999, you used the car 50% for business and 50% for personalpurposes. Since you did not meet the more-than-50%-use test, you mustinclude in gross income for 1999 your excess depreciation determinedas follows. Total depreciation claimed: (MACRS 200% DB method) $7,832 Total depreciation allowable: (Straight line method)  1996--10% of $11,000 $1,100  1997--20% of $11,000 2,200  1998--20% of $11,000      2,200      5,500 Excess depreciation $2,332 In 1999, you must include $2,332 in your gross income using Form4797. Your adjusted basis in the car is also increased by $2,332. Your1999 depreciation deduction is $1,100 [$11,000 (unadjusted basis) 50% (business use percentage) 20% (from column (c) ofTable 3 on the line for Jan. 1-- Sept. 30,1996)]. Disposition of a Car If you dispose of your car, you may have a taxable gain or adeductible loss. The portion of any gain that is due to depreciation(including any section 179 or clean-fuel vehicle deduction) that youclaimed on the car will be treated as ordinary income. However, youmay not have to recognize a gain or loss if you dispose of the carbecause of a casualty, theft, or trade-in. This section gives some general information about dispositions ofcars. For information on how to report the disposition of your car,see Publication 544. Casualty or theft.For a casualty or theft, a gain results when you receive insuranceor other reimbursement that is more than your adjusted basis in yourcar. If you then spend all of the proceeds to acquire replacementproperty (a new car or repairs to the old car) within a specifiedperiod of time, you do not recognize any gain. Your basis in thereplacement property is its cost minus any gain that is notrecognized. See Publication 547for more information. Trade-in.When you trade in an old car fora new one, the transaction is considered a like-kind exchange.Generally, no gain or loss is recognized. (For exceptions, see chapter 1 of Publication 544.)In a trade-in situation, your basis in the newproperty is generally your adjusted basis in the old property plus anyadditional amount you pay. (See Unadjusted basis, earlier.) Depreciation adjustment when you used the standard mileagerate.If you used the standard mileage rate for the business use of yourcar, depreciation was included in that rate. The rate of depreciationthat was allowed in the standard mileage rate is shown in the chartthat follows. You must reduce your basis in your car (but not belowzero) by the amount of this depreciation. TaxTip: These rates do not apply for any year in which the actual expensesmethod was used. Depreciation     Year(s)   Rate per Mile   1994 - 1999   $ .12  1992 - 1993      .11 1/2  1989 - 1991      .11  1988      .10 1/2  1987      .10  1986      .09  1983 - 1985      .08  1982      .07 1/2  1980 - 1981      .07 For tax years before 1990, the depreciation rates apply to thefirst 15,000 miles. For tax years after 1989, the depreciation ratesapply to all business miles. Example.In 1994, you bought a car for exclusive use in your business. Thecar cost $14,000. From 1994 through 1999, you used the standardmileage rate to figure your car expense deduction. You drove your car14,100 miles in 1994, 16,300 miles in 1995, 15,600 miles in 1996,16,700 miles in 1997, 15,100 miles in 1998, and 14,900 miles in 1999.Your depreciation is figured as follows.  Year  Miles x Rate  Depreciation  1994 14,100 .12 $ 1,692    1995 16,300 .12 1,956    1996 15,600 .12 1,872    1997 16,700 .12 2,004    1998 15,100 .12 1,812    1999 14,900 .12 1,788     Total depreciation $11,124   At the end of 1999, your adjusted basis in the car is $2,876($14,000 - $11,124). Depreciation deduction for the year of disposition.If you deduct actual car expenses and you dispose of your carbefore the end of its recovery period, you are allowed a reduceddepreciation deduction for the year of disposition. To figure the reduced depreciation deduction for a car disposed ofin 1999, first determine the depreciation deduction for the full yearusing Table 3. If you used a Date Placed in Service line for Jan.1--Sept. 30, you can deduct one-half of the regulardepreciation amount for the year of disposition. Figure yourdepreciation deduction for the full year using the rules explained inthis chapter and deduct 50% of that amount with your other actual carexpenses. If you used a Date Placed in Service line for Oct.1--Dec. 31, you can deduct a percentage of the regulardepreciation amount that is based on the month you disposed of thecar. Figure your depreciation deduction for the full year using therules explained in this chapter and multiply the result by thepercentage from the following table for the month that you disposed ofthe car.     Month     Percentage Jan., Feb., March 12.5% April, May, June 37.5% July, Aug., Sept. 62.5% Oct., Nov., Dec. 87.5% Caution: Do not use this table if you are a fiscal year filer. SeeDispositions in chapter 3 of Publication 946. Leasing a Car If you lease a car that you use in your business, you can use thestandard mileage rate or actual expenses to figure your deductible carexpense. This section explains how to figure actual expenses for aleased car. Deductible payments.You can deduct the part of each lease payment that is for the useof the car in your business. You cannot deduct any part of a leasepayment that is for personal use of the car, such as commuting. You must spread any advance payments over the entire lease period.You cannot deduct any payments you make to buy a car, even if thepayments are called lease payments. If you lease a car for 30 days or more, you may have to reduce yourlease payment deduction by an "inclusion amount." Inclusion Amounts If you lease a car that you use in your business for a lease termof 30 days or more, you may have to include an inclusion amount inyour income for each tax year you lease the car. To do this, you donot add an amount to income. Instead, you reduce your deduction foryour lease payment. (This reduction has an effect similar to the limiton the depreciation deduction you would have on the car if you ownedit.) The inclusion amount is a percentage of part of the fair marketvalue of the leased car multiplied by the percentage of business andinvestment use of the car for the tax year. It is prorated for thenumber of days of the lease term in the tax year. The inclusion amount applies to each tax year that you lease thecar if the fair market value (defined next) of the car when the leasebegan was more than the amounts shown in the following table. Year Lease Began Fair Market Value*     1999 $ 15,500     1997-1998 15,800     1995-1996 15,500         1994 14,600         1993 14,300         1992 13,700         1991 13,400     1987-1990 12,800     *These amounts are higher for electriccars. Fair market value.Fair market value is the price at which the property would changehands between a buyer and a seller, neither having to buy or sell, andboth having reasonable knowledge of all the necessary facts. Sales ofsimilar property around the same date may be helpful in figuring thefair market value of the property. Figure the fair market value on the first day of the lease term. Ifthe capitalized cost of a car is specified in the lease agreement, usethat amount as the fair market value. Figuring the inclusion amount.Inclusion amounts are listed in Appendix B and, forelectric cars leased after August 5, 1997, in Appendix C.If the fair market value of the car is $100,000 or less, use theappropriate appendix (depending on the year you first placed the carin service) to determine the inclusion amount. If the fair marketvalue is more than $100,000, see the Revenue Procedure(s) identifiedin the footnote of the appendices for the inclusion amount. RevenueProcedures are available at most IRS offices and many local libraries. For each tax year during which you lease the car for business,determine your inclusion amount by following these three steps. Locate the appendix that applies to you. To find theinclusion amount, do the following. Find the line that includes the fair market value of the caron the first day of the lease term. Go across the line to the column for the tax year in whichthe car is used under the lease to find the dollar amount. For thelast tax year of the lease, use the dollar amount for thepreceding year. Prorate the dollar amount from (1)(b) for the number of daysof the lease term included in the tax year. Multiply the prorated amount from (2) by the percentage ofbusiness and investment use for the tax year. This is your inclusionamount. Example.On January 17, 1997, you leased a car for 3 years and placed it inservice for use in your business. The car had a fair market value of$32,250 on the first day of the lease term. You use the car 75% forbusiness and 25% for personal purposes during each year of the lease.Assuming you continue to use the car 75% for business, you useAppendix B-3 to arrive at the following inclusionamounts for each year of the lease: Tax year   Dollaramount Proration  Business use  Inclusionamount 1997  $137 349/365  75% $ 98  1998   301 365/365  75% 226  1999   446 365/365  75% 335  2000   536 16/366  75% 18  Leased car changed from business to personal use.If you lease a car forbusiness use and, in a later year, change it to personal use, followthe rules explained earlier under Figuring the inclusion amount.For the tax year in which you stop using the car for business,use the dollar amount for the previous tax year. Prorate the dollaramount for the number of days in the lease term that fall within thetax year. Example.On August 16, 1998, Will leased an electric car with a fair marketvalue of $58,600 for 3 years. He used the car exclusively in his owndata processing business. On November 5, 1999, Will closed hisbusiness and went to work for a company where he is not required touse a car for business. Using Appendix C-2, Willcomputed his inclusion amount for 1998 and 1999 as shown in thefollowing table. Tax year   Dollaramount Proration  Business use  Inclusionamount 1998 $ 95 138/365  100% $ 36   1999   95 309/365  100%  80   Leased car changed from personal to business use.If you lease a car for personal use and, in a later year, change itto business use, you must determine the car's fair market value on thedate of conversion. Then figure the inclusion amount using the rulesexplained earlier under Figuring the inclusion amount. Usethe fair market value on the date of conversion. Example.In March 1997, Janice leased a car for 4 years for personal use. OnJune 1, 1999, she started working as a self-employed advertisingconsultant and started using the leased car for business purposes. Herrecords show that her business use for June 1 through December 31 was60%. To figure her inclusion amount for 1999, Janice obtained anappraisal from an independent car leasing company that showed the fairmarket value of her 1997 car on June 1, 1999, was $18,650. UsingAppendix B-1, Janice computed her inclusion amountfor 1999 as shown in the following table. Tax year  Dollaramount Proration  Business use  Inclusionamount  1999  $ 22 214/365  60% $ 8   Reporting inclusion amounts.For information on reporting inclusion amounts, employees shouldsee Car rentals under Completing Forms 2106 and2106-EZ in chapter 6.Sole proprietors should see theinstructions for Schedule C (Form 1040) and farmers should see theinstructions for Schedule F (Form 1040).