Question

An employee uses her employer’s auto 75 percent for business and 25 percent for personal use. The personal use is taxed to her as income. What percentage of the auto can the employer consider business use and depreciate? Will your answer change if the employee’s business use decreases to only 35 percent?

Answer 1

Answer = Until the employer includes the value of the personal use of the auto in the employee’s income, the employer may treat the auto as used 100 percent for business and is not required to allocate depreciation to the business-use portion.

The answer will not change if business use decreases to 35 percent as long as the value of personal use is included in the employee’s income.

An exception applies, however, to personal use of company car by a more-than-5 percent owner of a business or someone related to the owner; this personal use is never qualified business use for MACRS depreciation.

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