Section D - Depreciation of Vehicles

Depreciation is an amount you can deduct to recover the cost or other basis of your vehicle over a certain number of years. In some cases, you may elect to expense, under section 179, part of the cost of your vehicle in the year of purchase. For details, see Pub. 463.

Line 30.   Enter the vehicle's actual cost (including sales tax) or other basis (unadjusted for prior years' depreciation). If you traded in your vehicle, your basis is the adjusted basis of the old vehicle (figured as if 100% of the vehicle's use had been for business purposes) plus any additional amount you pay for your new vehicle. Reduce your basis by any diesel fuel or qualified electric vehicle credit or deduction for clean-fuel vehicles you claimed.

If you converted the vehicle from personal use to business use, your basis for depreciation is the smaller of the vehicle's adjusted basis or its fair market value on the date of conversion.

Line 31. Section 179 deduction.   If 2002 is the first year your vehicle was placed in service and the percentage on line 14 is more than 50%, you may elect to deduct as an expense a portion of the cost (subject to a yearly limit). To calculate this section 179 deduction, multiply the part of the cost of the vehicle that you choose to expense by the percentage on line 14. The total of your depreciation and section 179 deduction generally cannot be more than the percentage on line 14 multiplied by $3,060. However, this limit is equal to the percentage on line 14 multiplied by $7,660 for a vehicle that qualifies for the 30% special depreciation allowance, unless you elect not to claim it (explained on page 6) or the vehicle is qualified New York Liberty Zone (Liberty Zone) property (see Pub. 946 for more details). Also, a higher limit applies to certain clean-fuel and electric vehicles (see the line 36 instructions). Your section 179 deduction for the year cannot be more than the income from your job and any other active trade or business on your Form 1040.

If you are claiming a section 179 deduction on other property, or you placed more than $200,000 of section 179 property in service during the year, use Form 4562 to figure your section 179 deduction. Enter the amount of the section 179 deduction allocable to your vehicle (from Form 4562, line 12) on Form 2106, line 31.

Note:   For section 179 purposes, the cost of the new vehicle does not include the adjusted basis of the vehicle you traded in.

Example:
Cost including taxes	$15,000
Adjusted basis of trade-in	-    2,000
Section 179 basis	= $13,000
Limit on depreciation and section 179 deduction	$ 3,060
Smaller of:
Section 179 basis, or limit on depreciation and section 179 deduction	$ 3,060
Percentage on line 14	× .75
Section 179 deduction	= $ 2,295

Special depreciation allowance.   If you acquired and placed in service a new vehicle during the year, and the percentage on line 14 is more than 50%, you may be able to claim an additional 30% first-year depreciation allowance (subject to the overall limit explained above). To qualify as a new vehicle, the original use of the vehicle must have begun with you. You may also be able to claim an additional 30% first-year depreciation allowance on a used vehicle that is first used in the active conduct of your trade or business in the Liberty Zone, but only if substantially all of your use of the vehicle was within that zone. See Pub. 946 for more details. To figure the amount of the special depreciation allowance, complete the worksheet on page 6.

Worksheet (keep for your records)

1.	Enter the amount from line 30	1.
2.	Multiply line 1 by the percentage on Form 2106, line 14, and enter the result	2.
3.	Enter any section 179 deduction	3.
4.	Subtract line 3 from line 2	4.
5.	Multiply line 4 by 30% (.3), and enter the result	5.
6.	Multiply the limit shown in the table for the line 36 instructions by the percentage on Form 2106, line 14, and enter the result	6.
7.	Subtract line 3 from line 6	7.
8.	Enter the smaller of line 5 or line 7. Add the result to any section 179 deduction and enter the total on Form 2106, line 31	8.

Note:   If you had a written contract in effect before September 11, 2001, to acquire the vehicle, that vehicle does not qualify for the special depreciation allowance.

You may elect not to claim the special depreciation allowance for vehicles acquired and placed in service in 2002 by attaching a statement to your income tax return indicating that you are not claiming the special depreciation allowance for any such vehicles.

Line 32.   To figure the basis for depreciation, multiply line 30 by the percentage on line 14. From that result, subtract the full amount of any section 179 deduction and special depreciation allowance (and half of any investment credit taken before 1986 unless you took the reduced credit).

Line 33.   If you used the standard mileage rate in the first year the vehicle was placed in service and now elect to use the actual expense method, you must use the straight line method of depreciation for the vehicle's estimated useful life. Otherwise, use the chart at the top of page 7 to find the depreciation method and percentage to enter on line 33. (For example, if you placed a car in service on July 1, 2002, and you use the method in column (a), enter 200 DB 20% on line 33.) To use the chart, first find the date you placed the vehicle in service (line 11). Then, select the depreciation method and percentage from column (a), (b), or (c). For vehicles placed in service before 2002, use the same method you used on last year's return unless a decline in your business use requires a change to the straight line method. For vehicles placed in service during 2002, select the depreciation method and percentage after reading the explanation for each column.

Column (a).   You may use column (a) only if the business use percentage on line 14 is more than 50%. The method in this column, the 200% declining balance method, will give you the largest deduction in the year your vehicle is placed in service. This column is also used for vehicles placed in service before 1987 and depreciated under the accelerated cost recovery system (ACRS).

Column (b).   You may use column (b) only if the business use percentage on line 14 is more than 50%. The method in this column, the 150% declining balance method, will give you a smaller depreciation deduction than in column (a) for the first 3 years. However, you will not have a depreciation adjustment on this item for alternative minimum tax purposes. This may result in a smaller tax liability if you must file Form 6251, Alternative Minimum Tax - Individuals.

Column (c).   You must use column (c) for vehicles placed in service after 1986 if the business use percentage on line 14 is 50% or less. The method for these vehicles is the straight line method over 5 years. The use of this column is optional for these vehicles if the business use percentage on line 14 is more than 50%. This column is also used for vehicles placed in service after June 18, 1984, and before 1987 if you elected the straight line method over a recovery period of 12 years.

Note:   If your vehicle was used more than 50% for business in the year it was placed in service and used 50% or less in a later year, part of the depreciation and section 179 deduction previously claimed may have to be added back to your income in the later year. Figure the amount to be included in income on Form 4797, Sales of Business Property.

If you placed other business property in service during the year you placed your vehicle in service (for any year after 1986), or you used your vehicle mainly within an Indian reservation, you may not be able to use the chart. See Pub. 946 to figure your depreciation.

Depreciation Method and Percentage Chart - Line 33
Date Placed in Service	(a)	(b)	(c)
Oct. 1-Dec. 31, 2002	200 DB 5%	150 DB 3.75%	SL 2.5%
Jan. 1-Sept. 30, 2002	200 DB 20%	150 DB 15%	SL 10%
Oct. 1-Dec. 31, 2001*	200 DB 38%	150 DB 28.88%	SL 20%
Jan. 1-Sept. 30, 2001	200 DB 32%	150 DB 25.5%	SL 20%
Oct. 1-Dec. 31, 2000	200 DB 22.8%	150 DB 20.21%	SL 20%
Jan. 1-Sept. 30, 2000	200 DB 19.2%	150 DB 17.85%	SL 20%
Oct. 1-Dec. 31, 1999	200 DB 13.68%	150 DB 16.4%	SL 20%
Jan. 1-Sept. 30, 1999	200 DB 11.52%	150 DB 16.66%	SL 20%
Oct. 1-Dec. 31, 1998	200 DB 10.94%	150 DB 16.41%	SL 20%
Jan. 1-Sept. 30, 1998	200 DB 11.52%	150 DB 16.66%	SL 20%
Oct. 1-Dec. 31, 1997	200 DB 9.58%	150 DB 14.35%	SL 17.5%**
Jan. 1-Sept. 30, 1997	200 DB 5.76%	150 DB 8.33%	SL 10%
Jan. 1, 1987-Dec. 31, 1996	MACRS**	MACRS**	SL**
June 19, 1984-Dec. 31, 1986	ACRS**	///////////////////////////////////////////////////	SL**
*If you made the election under Notice 2001-70 to use the higher percentage rate for vehicles placed in service January 1 through September 30, 2001, use the percentage rate shown for vehicles placed in service January 1 through September 30, 2001. **Enter your unrecovered basis, if any, on line 34. See Pub. 463 for more information.

Line 34.   If during the year you did not sell or exchange your vehicle (or you sold or exchanged your vehicle that was placed in service after 1986 and before 1997), multiply line 32 by the percentage on line 33. If during the year you sold or exchanged your vehicle that was placed in service:

• Before 1987, enter -0- on line 34 for that vehicle.
• After 1996, multiply the result for line 34 by 50%, and enter on line 34. However, if you originally placed the vehicle in service during the last 3 months of a year after 1996, multiply the result for line 34 by the percentage shown below for the month you disposed of the vehicle:

Month	Percentage
Jan., Feb., March	12.5%
April, May, June	37.5%
July, Aug., Sept.	62.5%
Oct., Nov., Dec.	87.5%

Line 36.   Using the chart below, find the date you placed your vehicle in service. Then, enter on line 36 the corresponding amount from the Limit column.

Date Vehicle Was Placed in Service	Limit
Jan. 1-Dec. 31, 2002	$7,660*,**
Jan. 1-Dec. 31, 2001	4,900**
Jan. 1-Dec. 31, 2000	2,950**
Jan. 1, 1995-Dec. 31, 1999	1,775**
Jan. 1, 1993-Dec. 31, 1994	1,675
Jan. 1, 1991-Dec. 31, 1992	1,575
Jan. 1, 1987-Dec. 31, 1990	1,475
Apr. 3, 1985-Dec. 31, 1986	4,800
Jan. 1-Apr. 2, 1985	6,200
June 19-Dec. 31, 1984	6,000

* If the vehicle does not qualify for (or you elected not to claim) the special depreciation allowance or the vehicle is qualified Liberty Zone property, the limit is $3,060.

** For vehicles placed in service after August 5, 1997:

These limits do not apply to the cost of any qualified clean-fuel vehicle property (such as retrofit parts and components) installed on a vehicle for the purpose of permitting that vehicle to run on a clean-burning fuel. See section 179A for definitions. The limit for vehicles produced by an original equipment manufacturer and designed to run primarily on electricity is, for vehicles placed in service in: 2002, $22,980 ($9,180 if the vehicle does not qualify for (or you elected not to claim) the special depreciation allowance or the vehicle is qualified Liberty Zone property); 2001, $14,800; 2000, $8,850; 1999, $5,325; and 1998 and 1997, $5,425.

Paperwork Reduction Act Notice.

We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:

Recordkeeping	2 hr., 11 min.
Learning about the law or the form	27 min.
Preparing the form	1 hr., 27 min.
Copying, assembling, and sending the form to the IRS	34 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. See the Instructions for Form 1040.

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