How do I determine the useful life of my business vehicle?

The useful life period starts when you actually use the vehicle for business. Use these 3 major factors to figure your useful-life depreciation deduction:

• Basis of the vehicle to be depreciated – This is usually the cost of the vehicle.
• Salvage value – This is the residual value that the vehicle is estimated to have when you retire it.
• Depreciation period – This is the time period when you claim the deductions. To figure your depreciation period, choose between these 2 systems:
  • Useful life system – Under this system, the depreciation period is the actual life of the vehicle for you. This is based on your own use of the vehicle and your facts and circumstances.
  • Class life asset depreciation range system – Under this system, you choose a depreciation period from a set of ranges. The IRS creates the ranges for various classes of depreciable assets. The depreciation period assigned to each class shows the vehicle's useful life for that particular industry.