When can self-employed individuals start claiming business vehicle depreciation on a new vehicle?
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Self-employed individuals can begin claiming business vehicle depreciation on a new vehicle when the vehicle is placed in service in their trade or business. The "placed in service" date is the point at which the vehicle is ready and available for a specific business use, regardless of whether it is actually being used at that moment. This is a key concept in both the Internal Revenue Code and IRS guidance.
Legal Authority and Explanation
1. Placed in Service Requirement
- Internal Revenue Code § 167(a) allows a depreciation deduction for property used in a trade or business or held for the production of income.
- IRC § 168(d)(1) and related regulations specify that depreciation begins when property is placed in service.
- IRS Publication 946 states:
"You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first."
"You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Even if you are not using the property, it is in service when it is ready and available for its specific use."
2. Application to Business Vehicles
- For a self-employed individual, a new vehicle is considered placed in service when it is ready and available for use in the business, not necessarily when it is first driven for business purposes.
- If a vehicle is purchased and held for personal use, and later converted to business use, the placed in service date for depreciation purposes is the date of conversion to business use, not the original purchase date.
3. Recordkeeping
- The taxpayer must keep records showing the date the vehicle was placed in service, the cost or basis, and the percentage of business use.
4. Example
- If a self-employed taxpayer purchases a new vehicle on March 1, 2025, and begins using it for business on March 15, 2025, the placed in service date is March 15, 2025. Depreciation begins for the 2025 tax year, starting from that date.
- If the vehicle is purchased but not used or available for business until a later date (e.g., due to modifications or waiting for business use), the placed in service date is when it is actually ready and available for business use.
Summary Table
Key Points
- Depreciation starts when the vehicle is placed in service for business use—that is, when it is ready and available for use in the business, not merely when purchased.
- If the vehicle is first used for personal purposes, depreciation does not begin until it is converted to business use.
- Proper documentation of the placed in service date and business use percentage is required.
Conclusion: A self-employed individual can start claiming business vehicle depreciation in the tax year the vehicle is placed in service—i.e., when it is ready and available for use in the business, not before.
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