Claiming Depreciation on Your Vehicles

[MarinaVanessa]

I have some questions about depreciation on our vehicles.

Before buying a mini-van this year I drove a truck then 6 months ago I bought my van. Both the van and the truck have been used for daycare and family oriented trips (we still have the truck). How do I claim the vehicles in my taxes this year? I'm confused with the 5-year straight line and the 5-year 200% declining methods. What's the difference and which should I use?

Also what about the Convention (half-year, quarter?). What is that and what's the difference? Which do I use, if either, if I file my taxes yearly?

[TomCopeland]

car depreciation

You have the option of using the standard mileage rate or the actual business expenses method when claiming expenses for your car and van. You can pick one method for one vehicle and the other method for the other vehicle. If you choose the actual expenses method, you can depreciate the purchase price of the vehicle.
When you depreciate you have the choice of using the 5-year straight line method or the 5-year 200% declining balance method. Straight line depreciation means you get the same amount of depreciation each year for 5 years. Declining balance depreciation means you get a higher depreciation deduction in the first year and then the amount declines each year over 5 years. Using the declining balance method gets you depreciation deductions faster, so use this method.
Use the half year convention. This means you get a half year of the normal depreciation in the first year and then the other half at the end of five years. This is to account for people who buy cars on Jan 1st and on Dec 31st. The IRS doesn't want to give a full year's worth of depreciation to someone who buys a car near the end of the year. So, everyone gets the same amount of depreciation the first year, regardless of when they bought it.
The mid-quarter convention only comes into play if you bought more than 40% of the items you are depreciating in the last quarter of the year. If so, you are limited to how much depreciation you can claim in the first year.
All these depreciation rules are spelled out in detail in my 2011 Family Child Care Tax Workbook and Organizer.