Vehicle Depreciation: Comparing Deductions for Sole Proprietors

Can a sole proprietor claim the same depreciation on a vehicle purchase?

Yes, a sole proprietor can claim depreciation on a vehicle used for business purposes when it is purchased. Depreciation is a way to recover the cost of the vehicle over time, as it's used for business activities. Both sole proprietors and LLCs can claim depreciation, subject to certain requirements.

There are two common methods for claiming depreciation on a business vehicle: Modified Accelerated Cost Recovery System (MACRS) and Section 179 deduction.

1. Modified Accelerated Cost Recovery System (MACRS): This method allows you to spread the depreciation of the vehicle over a specified recovery period, usually five years for most vehicles. You will need to use the specific percentage rates published by the IRS in the MACRS depreciation tables.

2. Section 179 Deduction: In the year of purchase, the Section 179 deduction allows a taxpayer to deduct the full cost of qualifying property, such as a business vehicle, up to the annual limit ($1,050,000 for 2021) and a taxable income limitation. Eligible vehicles include those with a gross vehicle weight rating (GVWR) of 6,000 pounds or more, or certain vehicles with a GVWR of more than 6,000 pounds but not more than 14,000 pounds. There are different restrictions and deduction limits for passenger vehicles, trucks, and vans.

Please note that vehicle depreciation is based on the percentage of business use of the vehicle if there is both business and personal use. You should make sure to keep thorough records of your mileage and expenses to substantiate your business use of the vehicle.

It is important to consult with a tax professional or accountant to determine the appropriate method of depreciation and eligibility for your specific situation as a sole proprietor, as rules may change or have different requirements.