If you have just purchased a new car within the past year to use for your Uber or Lyft business, you must choose whether to use the standard mileage rate or Section 179 to take a deduction. Here is why the standard mileage rate doesn’t make sense if you’ve purchased a new car.
About Section 179
Under Section 179, you may deduct the cost of your car as an expense if your car was placed in service in 2015 and it was used predominantly for business (more than 50%). For 2015, the maximum Section 179 expense deduction is $25,000 for cars over 6,000 pounds. If you purchased your new car and placed it into service within the past year, you may claim a deduction for your vehicle under Section 179.
Standard Mileage Rate
For 2016, the standard mileage rate for the use of a car (also vans, pickups or panel trucks) is 54 cents per mile for business miles driven.
You may not use the standard mileage rate if you:
●claim a Section 179 depreciation for the first year that your vehicle is in service
●choose deduct your actual car expenses for that year, including gas, routine maintenance, insurance, or vehicle registration fees
●use five or more cars at the same time (such as in fleet operations)
●claim a special depreciation allowance
Why Section 179 Is a Better Option
If you have just purchased a new car, using Section 179 to depreciate your vehicle may result in a larger deduction. Here is an example, the first-year depreciation basis for a $50,000 new car placed in service during 2015 and used 100% for business would be $50,000. This would result in a maximum depreciation deduction of $3,160. With the election of the special depreciation allowance, this amount increases to $11,160 for the year. In contrast, you’d have to drive have 21,500 miles in order to achieve a deduction of $11,160 with the standard mileage rate. For the standard mileage rate, you may also not include any non-business use of the vehicle, including driving to and from your home to pick up locations. You are also not permitted to deduct any actual expenses for your car.
Whether you will come out ahead by using the standard mileage rate or by taking a Section 179 depreciation for your vehicle will depend on the cost of the car and the number of miles that you drive. However, unless you drive an exceptionally high number of annual business miles, it is unlikely that the standard mileage rate will provide you with a greater deduction than depreciating your vehicle using Section 179.