Publication 463 (2019), Travel, Gift, and Car Expenses 1

Publication 463 (2019), Travel, Gift, and Car Expenses

Publication 463 (2019), Travel, Gift, and Car Expenses 2

  • Publication 463 – Introductory Material
    • Future Developments
    • What’s New
    • Reminder
    • Introduction
      • Who should use this publication.
      • Users of employer-provided vehicles.
      • Who doesn’t need to use this publication.
      • Volunteers.
      • Comments and suggestions.
      • Ordering forms and publications.
      • Tax questions.
    • Useful Items – You may want to see:
  • Travel
    • Travel expenses defined.
    • Traveling Away From Home
      • Members of the Armed Forces.
      • Tax Home
        • Main place of business or work.
        • No main place of business or work.
        • Factors used to determine tax home.
      • Tax Home Different From Family Home
    • Temporary Assignment or Job
      • Temporary assignment vs. indefinite assignment.
      • Exception for federal crime investigations or prosecutions.
      • Determining temporary or indefinite.
      • Going home on days off.
      • Probationary work period.
    • What Travel Expenses Are Deductible?
      • Separating costs.
      • Travel expenses for another individual.
      • Employee.
      • Business associate.
      • Bona fide business purpose.
      • Meals
        • Lavish or extravagant.
        • 50% limit on meals.
        • Actual Cost
        • Standard Meal Allowance
          • Incidental expenses.
          • Incidental-expenses-only method.
          • 50% limit may apply.
          • Who can use the standard meal allowance.
          • Use of the standard meal allowance for other travel.
          • Amount of standard meal allowance.
          • Federal government’s fiscal year.
          • Standard meal allowance for areas outside the continental United States.
          • Special rate for transportation workers.
          • Travel for days you depart and return.
      • Travel in the United States
        • Trip Primarily for Business
        • Trip Primarily for Personal Reasons
        • Part of Trip Outside the United States
          • Public transportation.
          • Private car.
      • Travel Outside the United States
        • Travel Entirely for Business or Considered Entirely for Business
          • Travel entirely for business.
          • Travel considered entirely for business.
          • Exception 1—No substantial control.
          • Exception 2—Outside United States no more than a week.
          • Exception 3—Less than 25% of time on personal activities.
          • Exception 4—Vacation not a major consideration.
        • Travel Primarily for Business
          • Travel allocation rules.
          • Counting business days.
          • Transportation day.
          • Presence required.
          • Day spent on business.
          • Certain weekends and holidays.
          • Nonbusiness activity on the way to or from your business destination.
          • Nonbusiness activity at, near, or beyond business destination.
          • Other methods.
        • Travel Primarily for Personal Reasons
      • Luxury Water Travel
        • Daily limit on luxury water travel.
        • Meals and entertainment.
        • Not separately stated.
        • Exceptions
      • Conventions
        • Convention agenda.
        • Conventions Held Outside the North American Area
          • North American area.
          • Reasonableness test.
        • Cruise Ships
  • Meals and Entertainment
    • Entertainment
      • Entertainment—Defined
        • Deduction may depend on your type of business.
        • Separating costs.
        • Exceptions to the Rules
        • Examples of Nondeductible Entertainment
          • Entertainment events.
          • Entertainment facilities.
          • Club dues and membership fees.
          • Gift or entertainment.
    • Meals
      • Other rules for meals and entertainment expenses.
      • Examples.
      • Example 1.
      • Example 2.
      • Example 3.
    • 50% Limit
      • Costs to include or exclude.
      • Application of 50% limit.
      • When to apply the 50% limit.
      • Taking turns paying for meals.
      • Exception to the 50% Limit for Meals
        • 1—Expenses treated as compensation.
        • 2—Employee’s reimbursed expenses.
        • 3—Self-employed reimbursed expenses.
        • 4—Recreational expenses for employees.
        • 5—Advertising expenses.
        • 6—Sale of meals.
        • Individuals subject to “hours of service” limits.
  • Gifts
    • $25 limit.
    • Incidental costs.
    • Exceptions.
    • Gift or entertainment.
  • Transportation
    • Illustration of transportation expenses.
    • Temporary work location.
    • No regular place of work.
    • Two places of work.
    • Armed Forces reservists.
    • Commuting expenses.
    • Parking fees.
    • Advertising display on car.
    • Car pools.
    • Hauling tools or instruments.
    • Union members’ trips from a union hall.
    • Office in the home.
    • Examples of deductible transportation.
    • Car Expenses
      • Standard Mileage Rate
        • Choosing the standard mileage rate.
        • Standard mileage rate not allowed.
        • Five or more cars.
        • Interest.
        • Personal property taxes.
        • Parking fees and tolls.
        • Sale, trade-in, or other disposition.
      • Actual Car Expenses
        • Business and personal use.
        • Employer-provided vehicle.
        • Interest on car loans.
        • Taxes paid on your car.
        • Sales taxes.
        • Fines and collateral.
        • Casualty and theft losses.
        • Depreciation and section 179 deductions.
        • Car defined.
        • Qualified nonpersonal use vehicles.
        • More information.
        • Section 179 Deduction
          • More than 50% business use requirement.
          • Limits.
          • Limit on the amount of the section 179 deduction.
          • Limit for sport utility and certain other vehicles.
          • Limit on total section 179 deduction, special depreciation allowance, and depreciation deduction.
          • Cost of car.
          • Basis of car for depreciation.
          • When to elect.
          • How to elect.
          • Revoking an election.
          • Recapture of section 179 deduction.
          • Dispositions.
        • Special Depreciation Allowance
          • Combined depreciation.
          • Qualified car.
          • Election not to claim the special depreciation allowance.
        • Depreciation Deduction
          • Basis.
          • Placed in service.
          • Car placed in service and disposed of in the same year.
          • Methods of depreciation.
          • Exception.
          • More-than-50%-use test.
          • Qualified business use.
          • Use of your car by another person.
          • Business use changes.
          • Use for more than one purpose.
          • Change from personal to business use.
          • Limits.
          • Unadjusted basis.
          • Improvements.
          • Car trade-in.
          • Effect of trade-in on basis.
          • Traded car used only for business.
          • Traded car used partly in business.
          • Modified Accelerated Cost Recovery System (MACRS).
          • Recovery period.
          • Depreciation methods.
          • MACRS depreciation chart.
          • Depreciation in future years.
          • Disposition of car during recovery period.
          • How to use the 2019 chart.
        • Depreciation Limits
          • Trucks and vans.
          • Car used less than full year.
          • Reduction for personal use.
          • Section 179 deduction.
          • Deductions in years after the recovery period.
          • Unrecovered basis.
          • The recovery period.
          • How to treat unrecovered basis.
          • Table 4-1. 2019 MACRS Depreciation Chart      (Use To Figure Depreciation for 2019.)
        • Car Used 50% or Less for Business
          • Qualified business use 50% or less in year placed in service.
          • Qualified business use 50% or less in a later year.
          • Excess depreciation.
      • Leasing a Car
        • Deductible payments.
        • Inclusion Amounts
          • Fair market value.
          • Figuring the inclusion amount.
          • Leased car changed from business to personal use.
          • Leased car changed from personal to business use.
          • Reporting inclusion amounts.
    • Disposition of a Car
      • Casualty or theft.
      • Trade-in.
      • Depreciation adjustment when you used the standard mileage rate.
      • Depreciation deduction for the year of disposition.
  • Recordkeeping
    • How To Prove Expenses
      • What Are Adequate Records?
        • Documentary evidence.
        • Exception.
        • Adequate evidence.
        • Canceled check.
        • Duplicate information.
        • Timely kept records.
        • Proving business purpose.
        • Confidential information.
      • What if I Have Incomplete Records?
        • Sampling.
        • Exceptional circumstances.
        • Destroyed records.
      • Separating and Combining Expenses
        • Separating expenses.
        • Combining items.
        • Car expenses.
        • Gift expenses.
        • Allocating total cost.
        • If your return is examined.
      • How Long To Keep Records and Receipts
        • Reimbursed for expenses.
      • Examples of Records
  • How To Report
    • Where To Report
      • Self-employed.
      • Both self-employed and an employee.
      • Employees.
      • Gifts.
      • Statutory employees.
      • Reimbursement for personal expenses.
      • Income-producing property.
      • Vehicle Provided by Your Employer
        • Value reported on Form W-2.
        • Full value included in your income.
        • Less than full value included in your income.
    • Reimbursements
      • No reimbursement.
      • Reimbursement, allowance, or advance.
      • Employers.
      • Accountable Plans
        • Reasonable period of time.
        • Employee meets accountable plan rules.
        • Accountable plan rules not met.
        • Failure to return excess reimbursements.
        • Reimbursement of nondeductible expenses.
        • Adequate Accounting
        • Per Diem and Car Allowances
          • Related to employer.
          • The federal rate.
          • Regular federal per diem rate.
          • The standard meal allowance.
          • High-low rate.
          • Prorating the standard meal allowance on partial days of travel.
          • The standard mileage rate.
          • Fixed and variable rate (FAVR).
          • Reporting your expenses with a per diem or car allowance.
          • Allowance less than or equal to the federal rate.
          • Allowance more than the federal rate.
        • Returning Excess Reimbursements
          • Travel advance.
          • Unproven amounts.
          • Per diem allowance more than federal rate.
      • Nonaccountable Plans
        • Reporting your expenses under a nonaccountable plan.
      • Rules for Independent Contractors and Clients
        • Accounting to Your Client
          • Adequate accounting.
          • How to report.
        • Required Records for Clients or Customers
          • Contractor adequately accounts.
          • Contractor doesn’t adequately account.
    • How To Use Per Diem Rate Tables
      • The Two Substantiation Methods
        • High-low method.
        • Regular federal per diem rate method.
      • Transition Rules
        • High-low method.
        • Federal per diem rate method.
    • Completing Form 2106
      • Car expenses.
      • Information on use of cars.
      • Standard mileage rate.
      • Actual expenses.
      • Car rentals.
      • Transportation expenses.
      • Employee business expenses other than nonentertainment meals.
      • Non-entertainment-related meal expenses.
      • “Hours of service” limits.
      • Reimbursements.
      • Allocating your reimbursement.
      • After you complete the form.
      • Limits on employee business expenses.
      • 1. Limit on meals and entertainment.
      • 2. Limit on total itemized deductions.
      • Special Rules
        • Armed Forces Reservists Traveling More Than 100 Miles From Home
          • Member of a reserve component.
          • How to report.
        • Officials Paid on a Fee Basis
        • Expenses of Certain Performing Artists
          • Special rules for married persons.
          • Where to report.
        • Impairment-Related Work Expenses of Disabled Employees
  • How To Get Tax Help
    • Preparing and filing your tax return.
    • Employers can register to use Business Services Online.
    • Tax reform.
    • IRS social media.
    • Watching IRS videos.
    • Getting tax information in other languages.
    • Getting tax forms and publications.
    • Access your online account (individual taxpayers only).
    • Using direct deposit.
    • Getting a transcript or copy of a return.
    • Using online tools to help prepare your return.
    • Resolving tax-related identity theft issues.
    • Checking on the status of your refund.
    • Making a tax payment.
    • What if I can’t pay now?
    • Checking the status of an amended return.
    • Understanding an IRS notice or letter.
    • Contacting your local IRS office.
    • The Taxpayer Advocate Service (TAS) Is Here To Help You
      • What Is TAS?
      • How Can You Learn About Your Taxpayer Rights?
      • What Can TAS Do For You?
      • How Can You Reach TAS?
      • How Else Does TAS Help Taxpayers?
      • TAS for Tax Professionals
    • Low Income Taxpayer Clinics (LITCs)
  • Publication 463 – Additional Material
    • Appendices
      • Appendix B-1. Inclusion Amounts for Trucks and Vans First Leased in 2015
      • Appendix B-2. Inclusion Amounts for Trucks and Vans First Leased in 2016
      • Appendix B-3. Inclusion Amounts for Trucks and Vans First Leased in 2017
      • Appendix C-1. Inclusion Amounts for Passenger Automobiles First Leased in 2018
      • Appendix C-2. Inclusion Amounts for Passenger Automobiles First Leased in 2019

Future Developments

For the latest information about developments related to Pub. 463, such as legislation enacted after it was published, go to IRS.gov/Pub463.

 

What’s New

Standard mileage rate. For 2019, the standard mileage rate for the cost of operating your car for business use is 58 cents (0.58) per mile. Car expenses and use of the standard mileage rate are explained in chapter 4.

Depreciation limits on cars, trucks, and vans. For 2019, the first-year limit on depreciation, special depreciation allowance, and section 179 deduction for vehicles acquired before September 28, 2017, and placed in service during 2019 is $14,900. The first-year limit on depreciation, special depreciation allowance, and section 179 deduction for vehicles acquired after September 27, 2017, and placed in service during 2019 is $18,100. If you elect not to claim a special depreciation allowance for a vehicle placed in service in 2019, the amount is $10,100. Depreciation limits are explained in chapter 4.

Section 179 deduction. The maximum amount you can elect to deduct for most section 179 property (including cars, trucks, and vans) you placed in service in tax years beginning in 2019 is $1,020,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,550,000. Section 179 deduction is explained in chapter 4.

Special depreciation allowance. For 2019, the first year special (“bonus”) depreciation allowance on qualified property (including cars, trucks, and vans) is 100% for qualified property acquired and placed in service after September 27, 2017, and placed in service before January 2023, and is reduced 20% each year after for property placed in service before January 2027. Special depreciation allowance is explained in chapter 4.

 

Reminder

Photographs of missing children. The IRS is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Per diem rates. Current and prior per diem rates may be found on the U.S. General Services Administration (GSA) website at GSA.gov/Perdiem.

 

Introduction

You may be able to deduct the ordinary and necessary business-related expenses you have for:

  • Travel,

  • Non-entertainment-related meals,

  • Gifts, or

  • Transportation.

An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense doesn’t have to be required to be considered necessary.

This publication explains:

  • What expenses are deductible,

  • How to report them on your return,

  • What records you need to prove your expenses, and

  • How to treat any expense reimbursements you may receive.

 

 

Useful Items – You may want to see:

Publication

  • 535 Business Expenses

  • 946 How To Depreciate Property

Form (and Instructions)

  • Schedule A (Form 1040 or 1040-SR) Itemized Deductions

  • Schedule C (Form 1040 or 1040-SR) Profit or Loss From Business

  • Schedule F (Form 1040 or 1040-SR) Profit or Loss From Farming

  • 2106 Employee Business Expenses

  • 4562 Depreciation and Amortization

See How To Get Tax Help for information about getting these publications and forms.

1. Travel

If you temporarily travel away from your tax home, you can use this chapter to determine if you have deductible travel expenses.

This chapter discusses:

  • Traveling away from home,

  • Temporary assignment or job, and

  • What travel expenses are deductible.

It also discusses the standard meal allowance, rules for travel inside and outside the United States, luxury water travel, and deductible convention expenses.

 

Traveling Away From Home

You are traveling away from home if:

  • Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day’s work, and

  • You need to sleep or rest to meet the demands of your work while away from home.

This rest requirement isn’t satisfied by merely napping in your car. You don’t have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest.

Example 1.

You are a railroad conductor. You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. You are considered to be away from home.

Example 2.

You are a truck driver. You leave your terminal and return to it later the same day. You get an hour off at your turnaround point to eat. Because you aren’t off to get necessary sleep and the brief time off isn’t an adequate rest period, you aren’t traveling away from home.

 

Tax Home

To determine whether you are traveling away from home, you must first determine the location of your tax home.

Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located.

If you have more than one regular place of business, your tax home is your main place of business. See Main place of business or work , later.

If you don’t have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. See No main place of business or work , later.

If you don’t have a regular or main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. As an itinerant, you can’t claim a travel expense deduction because you are never considered to be traveling away from home.

Example 1.

You are single and live in Boston in an apartment you rent. You have worked for your employer in Boston for a number of years. Your employer enrolls you in a 12-month executive training program. You don’t expect to return to work in Boston after you complete your training.

During your training, you don’t do any work in Boston. Instead, you receive classroom and on-the-job training throughout the United States. You keep your apartment in Boston and return to it frequently. You use your apartment to conduct your personal business. You also keep up your community contacts in Boston. When you complete your training, you are transferred to Los Angeles.

You don’t satisfy factor (1) because you didn’t work in Boston. You satisfy factor (2) because you had duplicate living expenses. You also satisfy factor (3) because you didn’t abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Therefore, you have a tax home in Boston.

Example 2.

You are an outside salesperson with a sales territory covering several states. Your employer’s main office is in Newark, but you don’t conduct any business there. Your work assignments are temporary, and you have no way of knowing where your future assignments will be located. You have a room in your married sister’s house in Dayton. You stay there for one or two weekends a year, but you do no work in the area. You don’t pay your sister for the use of the room.

You don’t satisfy any of the three factors listed earlier. You are an itinerant and have no tax home.

 

Tax Home Different From Family Home

If you (and your family) don’t live at your tax home (defined earlier), you can’t deduct the cost of traveling between your tax home and your family home. You also can’t deduct the cost of meals and lodging while at your tax home. See Example 1 , later.

If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. See Example 2 , later.

Example 1.

You are a truck driver and you and your family live in Tucson. You are employed by a trucking firm that has its terminal in Phoenix. At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. You can’t deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. This is because Phoenix is your tax home.

Example 2.

Your family home is in Pittsburgh, where you work 12 weeks a year. The rest of the year you work for the same employer in Baltimore. In Baltimore, you eat in restaurants and sleep in a rooming house. Your salary is the same whether you are in Pittsburgh or Baltimore.

Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. You can’t deduct any expenses you have for meals and lodging there. However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. You can deduct the cost of your round trip between Baltimore and Pittsburgh. You can also deduct your part of your family’s living expenses for non-entertainment-related meals and lodging while you are living and working in Pittsburgh.

 

Temporary Assignment or Job

You may regularly work at your tax home and also work at another location. It may not be practical to return to your tax home from this other location at the end of each workday.

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For tax years beginning after December 2017 and before January 2026, the deduction of certain moving expenses is suspended for nonmilitary taxpayers. In order to deduct certain moving expenses, you must be an active member of the military and moving due to a permanent change of duty station.

 

What Travel Expenses Are Deductible?

Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible.

You can deduct ordinary and necessary expenses you have when you travel away from home on business. The type of expense you can deduct depends on the facts and your circumstances.

Table 1-1 summarizes travel expenses you may be able to deduct. You may have other deductible travel expenses that aren’t covered there, depending on the facts and your circumstances.

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When you travel away from home on business, you must keep records of all the expenses you have and any advances you receive from your employer. You can use a log, diary, notebook, or any other written record to keep track of your expenses. The types of expenses you need to record, along with supporting documentation, are described in Table 5-1 (see chapter 5).

Example.

Jerry drives to Chicago on business and takes his wife, Linda, with him. Linda isn’t Jerry’s employee. Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. The performance of these services doesn’t establish that her presence on the trip is necessary to the conduct of Jerry’s business. Her expenses aren’t deductible.

Jerry pays $199 a day for a double room. A single room costs $149 a day. He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. If both Jerry and Linda use public transportation, Jerry can deduct only his fare.

 

Meals

You can deduct the cost of meals if it is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Meal and entertainment expenses are discussed in chapter 2.

 

Actual Cost

You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. If you use this method, you must keep records of your actual cost.

 

Standard Meal Allowance

Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. The set amount varies depending on where and when you travel. In this publication, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. See the recordkeeping rules for travel in chapter 5.

Note.

The incidental-expenses-only method isn’t subject to the 50% limit discussed below.

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Federal employees should refer to the Federal Travel Regulations at GSA.gov for changes affecting claims for reimbursement.

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There is no optional standard lodging amount similar to the standard meal allowance. Your allowable lodging expense deduction is your actual cost.

Example.

Jen is employed in New Orleans as a convention planner. In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. She left her home in New Orleans at 10 a.m. on Wednesday and arrived in Washington, DC, at 5:30 p.m. After spending 2 nights there, she flew back to New Orleans on Friday and arrived back home at 8 p.m. Jen’s employer gave her a flat amount to cover her expenses and included it with her wages.

Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday.

Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days.

 

Travel in the United States

The following discussion applies to travel in the United States. For this purpose, the United States includes the 50 states and the District of Columbia. The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. See Part of Trip Outside the United States , later.

 

Trip Primarily for Business

You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.

Example.

You work in Atlanta and take a business trip to New Orleans in May. Your business travel totals 900 miles round trip. On your way home, you stop in Mobile to visit your parents. You spend $2,165 for the 9 days you are away from home for travel, non-entertainment-related meals, lodging, and other travel expenses. If you hadn’t stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,633.50. You can deduct $1,633.50 for your trip, including the cost of round-trip transportation to and from New Orleans. The deduction for your non-entertainment-related meals is subject to the 50% limit on meals mentioned earlier.

 

Trip Primarily for Personal Reasons

If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that are directly related to your business.

A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, won’t change what is really a vacation into a business trip.

 

Part of Trip Outside the United States

If part of your trip is outside the United States, use the rules described later in this chapter under Travel Outside the United States for that part of the trip. For the part of your trip that is inside the United States, use the rules for travel in the United States. Travel outside the United States doesn’t include travel from one point in the United States to another point in the United States. The following discussion can help you determine whether your trip was entirely within the United States.

 

Travel Outside the United States

If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. For this purpose, the United States includes the 50 states and the District of Columbia.

How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related.

 

Travel Entirely for Business or Considered Entirely for Business

You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business.

 

Travel Primarily for Business

If you travel outside the United States primarily for business but spend some of your time on other activities, you generally can’t deduct all of your travel expenses. You can only deduct the business portion of your cost of getting to and from your destination. You must allocate the costs between your business and other activities to determine your deductible amount. See Travel allocation rules , later.

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You don’t have to allocate your travel expenses if you meet one of the four exceptions listed earlier under Travel considered entirely for business. In those cases, you can deduct the total cost of getting to and from your destination.

 

Travel Primarily for Personal Reasons

If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. However, if you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business.

Example.

The university from which you graduated has a continuing education program for members of its alumni association. This program consists of trips to various foreign countries where academic exercises and conferences are set up to acquaint individuals in most occupations with selected facilities in several regions of the world. However, none of the conferences are directed toward specific occupations or professions. It is up to each participant to seek out specialists and organizational settings appropriate to his or her occupational interests.

Three-hour sessions are held each day over a 5-day period at each of the selected overseas facilities where participants can meet with individual practitioners. These sessions are composed of a variety of activities including workshops, mini-lectures, role playing, skill development, and exercises. Professional conference directors schedule and conduct the sessions. Participants can choose those sessions they wish to attend.

You can participate in this program because you are a member of the alumni association. You and your family take one of the trips. You spend about 2 hours at each of the planned sessions. The rest of the time you go touring and sightseeing with your family. The trip lasts less than 1 week.

Your travel expenses for the trip aren’t deductible since the trip was primarily a vacation. However, registration fees and any other incidental expenses you have for the five planned sessions you attended that are directly related and beneficial to your business are deductible business expenses. These expenses should be specifically stated in your records to ensure proper allocation of your deductible business expenses.

 

Luxury Water Travel

If you travel by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount you can deduct. The limit is twice the highest federal per diem rate allowable at the time of your travel. (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home within the United States for business purposes.)

Example.

Caroline, a travel agent, traveled by ocean liner from New York to London, England, on business in May. Her expense for the 6-day cruise was $6,200. Caroline’s deduction for the cruise can’t exceed $4,152 (6 days × $692 daily limit).

 

Entertainment$1,000 
0% limit× 0.00 
Allowable entertainment $0.00
Non-entertainment-related meals$3,700 
50% limit× 0.50 
Allowable non-entertainment meals & entertainment$1,850 
Other travel expenses+ 1,500 
Allowable cost before the daily limit$3,350
Daily limit for May 2019$ 692 
Times number of days× 6 
Maximum luxury water travel  
deduction$4,152
Amount of allowable deduction$3,350

Caroline’s deduction for her cruise is limited to $3,350, even though the limit on luxury water travel is higher.

 

Exceptions

The daily limit on luxury water travel (discussed earlier) doesn’t apply to expenses you have to attend a convention, seminar, or meeting on board a cruise ship. See Cruise Ships , later, under Conventions.

 

Conventions

You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. You can’t deduct the travel expenses for your family.

If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you can’t deduct the expenses.

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Your appointment or election as a delegate doesn’t, in itself, determine whether you can deduct travel expenses. You can deduct your travel expenses only if your attendance is connected to your own trade or business.

 

Conventions Held Outside the North American Area

You can’t deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless:

  • The meeting is directly related to the active conduct of your trade or business, and

  • It is as reasonable to hold the meeting outside the North American area as within the North American area. See Reasonableness test , later.

If the meeting meets these requirements, you must also satisfy the rules for deducting expenses for business trips in general, discussed earlier under Travel Outside the United States .

 

Cruise Ships

You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. All ships that sail are considered cruise ships.

You can deduct these expenses only if all of the following requirements are met.

  1. The convention, seminar, or meeting is directly related to the active conduct of your trade or business.

  2. The cruise ship is a vessel registered in the United States.

  3. All of the cruise ship’s ports of call are in the United States or in possessions of the United States.

  4. You attach to your return a written statement signed by you that includes information about:

    1. The total days of the trip (not including the days of transportation to and from the cruise ship port),

    2. The number of hours each day that you devoted to scheduled business activities, and

    3. A program of the scheduled business activities of the meeting.

  5. You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes:

    1. A schedule of the business activities of each day of the meeting, and

    2. The number of hours you attended the scheduled business activities.

 

2. Meals and Entertainment

You can no longer take a deduction for any expense related to activities generally considered entertainment, amusement, or recreation. You can continue to deduct 50% of the cost of business meals if you (or your employee) are present and the food or beverages aren’t considered lavish or extravagant.

This is an Image: taxtip.gif

 

If food or beverages are provided during or at an entertainment event, and the food and beverages were purchased separately from the entertainment or the cost of the food and beverages was stated separately from the cost of the entertainment on one or more bills, invoices, or receipts, you may be able to deduct the separately stated costs as a meal expense. For more information, see Notice 2018-76, available at IRS.gov/irb/ 2018-42_IRB#NOT-2018-76.

 

Entertainment

 

Entertainment—Defined

Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. Entertainment may also include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families.

 

Exceptions to the Rules

In general, entertainment expenses are nondeductible. However, there are a few exceptions to the general rule including:

  • Entertainment treated as compensation on your originally filed tax returns (and treated as wages to your employees);

  • Recreational expenses for employees such as a holiday party or a summer picnic;

  • Expenses related to attending business meetings or conventions of certain exempt organizations such as business leagues, chambers of commerce, professional associations, etc.; and

  • Entertainment sold to customers. For example, if you run a nightclub, your expenses for the entertainment you furnish to your customers, such as a floor show, aren’t subject to the nondeductible rules.

 

 

Examples of Nondeductible Entertainment

 

Meals

As discussed above, entertainment expenses are generally nondeductible. However, you may continue to deduct 50% of the cost of business meals if you (or an employee) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant, or similar business contact.

Food and beverages that are provided during entertainment events are not considered entertainment if purchased separately from the entertainment, or if the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. However, the entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

 

50% Limit

In general, you can deduct only 50% of your business-related meal expenses, unless an exception applies. (If you are subject to the Department of Transportation’s “hours of service” limits, you can deduct 80% of your business-related meal expenses. See Individuals subject to “hours of service” limits , later.)

The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed.

Examples of meals might include:

  • Meals while traveling away from home (whether eating alone or with others) on business, or

  • Meal at a business convention or business league meeting.

 

 

Figure A. Does the 50% Limit Apply to Your Expenses?

There are exceptions to these rules. See Exceptions to the 50% Limit for Meals , later.

 

This is an Image: 11081l01.gif

 

Figure A. Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions

Figure A. Does the 50% Limit Apply to Your Expenses?

Figure A. Does the 50% Limit Apply to Your Expenses?

Summary: This is a flowchart used to determine if employees and self-employed persons need to put a 50% limit on their business expense deductions.

Start

This is the starting of the flowchart.

Decision (1)

Were your meal and entertainment expenses reimbursed? (Count only reimbursements your employer didn’t include in box 1 of your Form W-2. If self-employed, count only reimbursements from clients or customers that aren’t included on Form 1099-MISC, Miscellaneous Income.)

IF Yes Continue To Decision (2)
IF No Continue To Process (a)

Decision (2)

If an employee, did you adequately account to your employer under an accountable plan? If self-employed, did you provide the payer with adequate records? (See Chapter 6.)

IF Yes Continue To Decision (3)
IF No Continue To Process (a)

Decision (3)

Did your expenses exceed the reimbursement?

IF Yes Continue To Decision (4)
IF No Continue To Process (b)

Decision (4)

FOR the amount reimbursed… Continue To Process (b)
FOR the excess amount… Continue To Process (a)

Process (a)

Your meal and entertainment expenses are NOT subject to the limitations. However, since the reimbursement wasn’t treated as wages or as other taxable income, you can’t deduct the expenses.

Continue To End

Process (b)

Your nonentertainment meal expenses ARE subject to the 50% limit. Your entertainment expenses are nondeductible.

Continue To End

End

This is the ending of the flowchart.

Please click here for the text description of the image.

 

 

Exception to the 50% Limit for Meals

Your meal expense isn’t subject to the 50% limit if the expense meets one of the following exceptions.

3. Gifts

If you give gifts in the course of your trade or business, you may be able to deduct all or part of the cost. This chapter explains the limits and rules for deducting the costs of gifts.

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If you are entitled to a reimbursement from your employer but you don’t claim it, you can’t claim a deduction for the expenses to which that unclaimed reimbursement applies. This type of deduction is considered a miscellaneous deduction which is no longer allowable due to the suspension of miscellaneous itemized deductions subject to the 2% floor under section 67(a).

4. Transportation

This chapter discusses expenses you can deduct for business transportation when you aren’t traveling away from home, as defined in chapter 1. These expenses include the cost of transportation by air, rail, bus, taxi, etc., and the cost of driving and maintaining your car.

Transportation expenses include the ordinary and necessary costs of all of the following.

  • Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Tax home is defined in chapter 1.

  • Visiting clients or customers.

  • Going to a business meeting away from your regular workplace.

  • Getting from your home to a temporary workplace when you have one or more regular places of work. These temporary workplaces can be either within the area of your tax home or outside that area.

Transportation expenses don’t include expenses you have while traveling away from home overnight. Those expenses are travel expenses discussed in chapter 1. However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. See Car Expenses , later.

Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. However, there may be exceptions to this general rule. You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Also, daily transportation expenses can be deducted if (1) you have one or more regular work locations away from your residence; or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance.

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If you are entitled to a reimbursement from your employer but you don’t claim it, you can’t claim a deduction for the expenses to which that unclaimed reimbursement applies. This type of deduction is considered a miscellaneous deduction which is no longer allowable due to the suspension of miscellaneous itemized deductions subject to the 2% floor under section 67(a).

 

Car Expenses

If you use your car for business purposes, you may be able to deduct car expenses. You generally can use one of the two following methods to figure your deductible expenses.

  • Standard mileage rate.

  • Actual car expenses.

 

The cost of using your car as an employee, whether measured using actual expenses or the standard mileage rate, will no longer be allowed to be claimed as an unreimbursed employee travel expense as a miscellaneous itemized deduction due to the suspension of miscellaneous itemized deductions that are subject to the 2% floor under section 67(a). The suspension applies to tax years beginning after December 2017 and before January 2026. Deductions for expenses that are deductible in determining adjusted gross income are not suspended. For example, Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials are allowed to deduct unreimbursed employee travel expenses as an adjustment to total income on Schedule 1 (Form 1040 or 1040-SR), line 11.

If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. See Leasing a Car , later.

In this publication, “car” includes a van, pickup, or panel truck. For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later.

 

Standard Mileage Rate

For 2019, the standard mileage rate for the cost of operating your car for business use is 58 cents (0.58) per mile.

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If you use the standard mileage rate for a year, you can’t deduct your actual car expenses for that year. You can’t deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. See Choosing the standard mileage rate and Standard mileage rate not allowed, later.

You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. See chapter 6 for more information on reimbursements .

 

Actual Car Expenses

If you don’t use the standard mileage rate, you may be able to deduct your actual car expenses.

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If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction.

Actual car expenses include:

Depreciation
Licenses
Lease
payments
Registration
fees
GasInsuranceRepairs
OilGarage rentTires
TollsParking fees 

 

If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Continue to keep records, as explained later in chapter 5.

 

Section 179 Deduction

You can elect to recover all or part of the cost of a car that is qualifying section 179 property, up to a limit, by deducting it in the year you place the property in service. This is the section 179 deduction. If you elect the section 179 deduction, you must reduce your depreciable basis in the car by the amount of the section 179 deduction.

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There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. See Depreciation Limits, later.

You can claim the section 179 deduction only in the year you place the car in service. For this purpose, a car is placed in service when it is ready and available for a specifically assigned use in a trade or business. Even if you aren’t using the property, it is in service when it is ready and available for its specifically assigned use.

A car first used for personal purposes can’t qualify for the deduction in a later year when its use changes to business.

Example.

In 2018, you bought a new car and used it for personal purposes. In 2019, you began to use it for business. Changing its use to business use doesn’t qualify the cost of your car for a section 179 deduction in 2019. However, you can claim a depreciation deduction for the business use of the car starting in 2019. See Depreciation Deduction , later.

 

Special Depreciation Allowance

You may be able to claim the special depreciation allowance for your car, truck, or van if it is qualified property and was placed in service in 2019. The allowance for 2019 is an additional depreciation deduction for 40% of the car’s depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). This allowance is increased to 100% if the vehicle was acquired after September 27, 2017, and placed in service during 2019. The special depreciation allowance applies only for the first year the car is placed in service. Further, while it applies to a new vehicle regardless of the date in 2019 when it was placed in service, it applies to a used vehicle only if the vehicle was acquired after September 27, 2017, placed in service during 2019, and meets the used property requirements. For more information on the used property requirements, see section 168(k)(2)(E)(ii). To qualify for the allowance, more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later).

 

Depreciation Deduction

If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car.

You generally need to know the following things about the car you intend to depreciate.

  • Your basis in the car.

  • The date you place the car in service.

  • The method of depreciation and recovery period you will use.

 

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If your business use later falls to 50% or less, you may have to recapture (include 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 Pub. 551, Basis of Assets, for information on your basis in the car.

For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Pub. 946.

 

Depreciation Limits

There are limits on the amount you can deduct for depreciation of your car, truck, or van. The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. The maximum amount you can deduct each year depends on the date you acquired the passenger automobile and the year you place the passenger automobile in service. These limits are shown in the following tables for 2019.

 

Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) acquired before September 28, 2017, and placed in service during 2018 or later

Date   4th &
Placed In1st2nd3rdLater
ServiceYearYearYearYears
2019$14,9001$16,100$9,700$5,760
201816,400216,0009,6005,760
1 $10,100 if the passenger automobile isn’t qualified property or if you elect not to claim the special depreciation allowance.
2 $10,000 if the passenger automobile isn’t qualified property or if you elect not to claim the special depreciation allowance.

 

 

Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) acquired after September 27, 2017, and placed in service during 2018 or later

Date   4th &
Placed In1st2nd3rdLater
ServiceYearYearYearYears
2019$18,1001$16,100$9,700$5,760
201818,000216,0009,6005,760
1 $10,100 if the passenger automobile isn’t qualified property or if you elect not to claim the special depreciation allowance.
2 $10,000 if the passenger automobile isn’t qualified property or if you elect not to claim the special depreciation allowance.

The maximum amount you can deduct each year depends on the year you place the car in service. These limits are shown in the following tables for prior years.

 

Maximum Depreciation Deduction for Cars Placed in Service Prior to 2018

Date   4th &
Placed1st2nd3rdLater
In ServiceYearYearYearYears
2012–2017$11,1601$5,100$3,050$1,875
2010–201111,06024,9002,9501,775
2008–200910,96034,8002,8501,775
20073,0604,9002,8501,775
20062,9604,8002,8501,775
20052,9604,7002,8501,675
200410,61034,8002,8501,675
5/06/2003–
12/31/2003
10,71044,9002,9501,775
1/01/2003–
5/05/2003
7,66054,9002,9501,775
1 $3,160 if the car isn’t qualified property or if you elect not to claim the special depreciation allowance.
2 $3,060 if the car isn’t qualified property or if you elect not to claim the special depreciation allowance.
3 $2,960 if the car isn’t qualified property or if you elect not to claim the special depreciation allowance.
4 $7,660 if you acquired the car before 5/06/2003. $3,060 if the car isn’t qualified property or if you elect not to claim any special depreciation allowance.
5 $3,060 if you acquired the car before 9/11/2001, the car isn’t qualified property, or you elect not to claim the special depreciation allowance.

 

How to treat unrecovered basis.

If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. For example, no deduction is allowed for a year you use your car 100% for personal purposes.

Example.

In April 2013, Bob bought and placed in service a car he used exclusively in his business. The car cost $31,500. Bob didn’t claim a section 179 deduction or the special depreciation allowance for the car. He continued to use the car 100% in his business throughout the recovery period (2013 through 2018). For those years, Bob used the MACRS Depreciation Chart (200% DB method), the Maximum Depreciation Deduction for Cars Placed in Service Prior to 2018 table and the Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) acquired before September 28, 2017, and placed in service during 2018 or later table, earlier, for the applicable tax year to figure his depreciation deductions during the recovery period. Bob’s depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table.

 

 MACRS  Deprec.
Year%AmountLimitAllowed
201320.00$6,300$11,160$6,300
201432.0010,0805,1005,100
201519.206,0483,0503,050
201611.523,6291,8751,875
201711.523,6291,8751,875
20185.761,8141,8751,814
Total$31,500 $20,014

For the correct limit, see the Maximum Depreciation Deduction for Cars Placed in Service Prior to 2018 table and the Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) acquired before September 28, 2017, and placed in service during 2018 or later table under Depreciation Limits, earlier, for the maximum amount of depreciation allowed each year.

At the end of 2018, Bob had an unrecovered basis in the car of $11,486 ($31,500 – $20,014). If Bob continued to use the car 100% for business in 2019 and later years, he can claim a depreciation deduction equal to the lesser of $1,875 or his remaining unrecovered basis.

If Bob’s business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $12,008 ($20,014 × 60% (0.60)), but he still would have to reduce his basis by $20,014 to determine his unrecovered basis.

 

Table 4-1. 2019 MACRS Depreciation Chart (Use To Figure Depreciation for 2019.)

 

Car Used 50% or Less for Business

If you use your car 50% or less for qualified business use (defined earlier under Depreciation Deduction) either in the year the car is placed in service or in a later year, special rules apply. The rules that apply in these two situations are explained in the following paragraphs. (For this purpose, “car” was defined earlier under Actual Car Expenses and includes certain trucks and vans.)

Example.

In June 2016, you purchased a car for exclusive use in your business. You met the more-than-50%-use test for the first 3 years of the recovery period (2016 through 2018) but failed to meet it in the fourth year (2019). You determine your depreciation for 2019 using 20% (from column (c) of Table 4-1). You will also have to determine and include in your gross income any excess depreciation, discussed next.

Excess depreciation.

You must include any excess depreciation in your gross income and add it to your car’s adjusted basis for the first tax year in which you don’t use the car more than 50% in qualified business use. Use Form 4797, Sales of Business Property, to figure and report the excess depreciation in your gross income.

Excess depreciation is:

  1. The amount of the depreciation deductions allowable for the car (including any section 179 deduction claimed and any special depreciation allowance claimed) for tax years in which you used the car more than 50% in qualified business use, minus

  2. The amount of the depreciation deductions that would have been allowable for those years if you hadn’t used the car more than 50% in qualified business use for the year you placed it in service. This means the amount of depreciation figured using the straight line method.

 

Example.

In September 2015, you bought a car for $20,500 and placed it in service. You didn’t claim the section 179 deduction or the special depreciation allowance. You used the car exclusively in qualified business use for 2015, 2016, 2017, and 2018. For those years, you used the appropriate MACRS Depreciation Chart to figure depreciation deductions totaling $13,185 ($3,160 for 2015, $5,100 for 2016, $3,050 for 2017, and $1,875 for 2018) under the 200% DB method.

During 2019, you used the car 30% for business and 70% for personal purposes. Since you didn’t meet the more-than-50%-use test, you must switch from the 200% DB depreciation method to the straight line depreciation method for 2019, and include in gross income for 2019 your excess depreciation determined as follows.

 

Total depreciation claimed:
(MACRS 200% DB method)
$13,185
Minus total depreciation allowable:
(Straight line method)
 
2015—10% of $20,500$2,050 
(Limit: $3,160)  
2016—20% of $20,5004,100 
(Limit: $5,100)  
2017—20% of $20,5003,050 
(Limit: $3,050)  
2018—20% of $20,5001,875-11,075
(Limit: $1,875)  
Excess depreciation $2,110
   

For the correct limit, see the Maximum Depreciation Deduction for Cars Placed in Service Prior to 2018 table and the Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) acquired before September 28, 2017, and placed in service during 2018 or later table under Depreciation Limits, earlier, for the maximum amount of depreciation allowed each year.

In 2019, using Form 4797, you figure and report the $2,110 excess depreciation you must include in your gross income. Your adjusted basis in the car is also increased by $2,110. Your 2019 depreciation is $1,230 ($20,500 (unadjusted basis) × 30% (0.30) (business-use percentage) × 20% (0.20) (from column (c) of Table 4-1 on the line for Jan. 1–Sept. 30, 2015)). However, your depreciation deduction is limited to $563 ($1,875 x 30% (0.30) business use).

 

Leasing a Car

If you lease a car, truck, or van that you use in your business, you can use the standard mileage rate or actual expenses to figure your deductible expense. This section explains how to figure actual expenses for a leased car, truck, or van.

 

Inclusion Amounts

If you lease a car, truck, or van that you use in your business for a lease term of 30 days or more, you may have to include an inclusion amount in your income for each tax year you lease the vehicle. To do this, you don’t add an amount to income. Instead, you reduce your deduction for your lease payment. (This reduction has an effect similar to the limit on the depreciation deduction you would have on the vehicle if you owned it.)

The inclusion amount is a percentage of part of the fair market value of the leased vehicle multiplied by the percentage of business and investment use of the vehicle for the tax year. It is prorated for the number of days of the lease term in the tax year.

The inclusion amount applies to each tax year that you lease the vehicle if the fair market value (defined next) when the lease began was more than the amounts shown in the following tables.

For tax years beginning 2019, all vehicles are subject to a single inclusion amount threshold for passenger automobiles leased and put into service in 2019. You may have an inclusion amount for a passenger automobile if:

Passenger Automobiles (Including Trucks and Vans)

 Year Lease BeganFair Market Value 
 2018–2019$50,000 
 If the lease term began before 2018, see tables below to find out if you have an inclusion amount. 

 

For years prior to 2018, see the inclusion tables below. You may have an inclusion amount for a passenger automobile if:

Cars (Except for Trucks and Vans)

 Year Lease BeganFair Market Value 
 2013–2017$19,000 
 2010–201218,500 

 

 

Trucks and Vans

 Year Lease BeganFair Market Value 
 2014–2017$19,500 
 2010–201319,000 

 

Example.

On August 16, 2018, Will leased a car with a fair market value of $54,500 for 3 years. He used the car exclusively in his own data processing business. On November 5, 2019, Will closed his business and went to work for a company where he isn’t required to use a car for business. Using Appendix C-1, Will figured his inclusion amount for 2018 and 2019 as shown in the following table and reduced his deductions for lease payments by those amounts.

Tax yearDollar amountProrationB