How to Compute Depreciation Based on Mileage
Car depreciation is an unavoidable part of vehicle ownership and the cost per mile to drive might actually be more than you think. If you are using your vehicle for business purposes and putting additional mileage on it, you may find that the wear and tear on a car is greater than if it were reserved solely for personal use. However, it is possible to reclaim some of that value by tracking your mileage and reporting it and depreciation along with your income tax return. In addition, having a sense ahead of time for car depreciation per mile can help to avoid surprises if you intend to re-sell your vehicle in a few years’ time.
The average car can depreciate as much of $0.08 per mile, according to some sources. This means, of course, that your depreciation costs will be higher the more you drive. The wear and tear on your car and costs per mile will vary depending on where you travel and the conditions of the road, including its physical state, the weather and if the roads move at highway speeds or deal with heavy traffic. Car depreciation costs take into consideration the tires, internal workings and body parts. When you take into account the addition of things like oil changes and gasoline costs, the cost per mile to drive rises to about $0.26.
Most cars lose 40% of their value within the first year, though they can lose as little as 10% depending on the level of use and proper maintenance. If you drive around 10,000 miles per year, your car will lose 60% of its value in the first three years.
As of 2018, you are permitted to deduct mileage traveled for business purposes in your personal vehicle on your income taxes in most instances, but the cost per mile to drive varies. This is particularly true of 1099 employees, but those who are W2 workers may also be eligible depending on their circumstances. Careful record-keeping is key, however, to guard against any potential audit.
Any trip that is taken for business, including those to meet with clients, purchase office supplies or other non-commuting tasks, are eligible for mileage deduction. If you drive to and from an office each day, note that it is not possible to deduct those miles on your taxes.
The IRS states that your mileage log must include the dates of your trip, your purpose for the outing, where you drove and, of course, your mileage itself. It might be helpful to track your starting and ending odometer readings, in addition to the number of actual miles you drove. You may also be expected to report to the IRS the number of miles you drove for commuting or personal use, though you will not get reimbursed for them.
To track your mileage, it’s best to rely on one dedicated system to help you stay organized. An electronic document on your phone or laptop, a notebook or an app specifically designed to keep mileage records are good methods to ensure you won’t miscalculate or misplace any records.
The average depreciation of your vehicle is significant. The average vehicle will lose $15,000 in the first five years of ownership. This indicates an average of between $2,000-and-$6,000 per year. Who knew the value of wear and tear on a car was so great? Small sedans and small SUVs tend to be at the lower end of the scale, whereas vans and electric cars are more often found at the higher end.