# Depreciation, Taxes and "dead miles". Your opinion



## Peterson (Jul 9, 2015)

Here is some starting information:

I located in Florida (0% state taxes)
I have an office job that pay me let say 55k gross per year.

I am driving uber/lyft for 30 hours/week for UberX/ regular Lyft.
I am driving same car for commute/ TNC, with most mileage (2/3 - 3/4) on TNC.
I am driving cheap, economic sedan car Nissan Versa.
I went on Kelley Blue Book site to check what would be depreciation for my car. Taking in consideration different selling option, condition of the car, and mileage I came to the number of $.04, let say even $.05 per mile. I took same car, same condition and evaluated price of the car with normal mileage and with additional 30k mileage that I can do with driving to TNC. (25 hours/ week * 25 mile/hour * 50 weeks = 31k miles)

Now, when I pay taxes I have W2 form form job, and I fill Scheduler C with income from TNC, actual mileage for TNC and $.54 / mile deduction (not-itemized). In mileage I include ALL mileage I made for work for TNC, including trip with passenger, way to pick up, dead miles, way to and from this "job", and miles to gas station, service.

Now let say it cost me $.20 to drive a mile, including gas, depreciation of the car, oil/tire change and other expenses as "red light" ticket, scratch fixing, vacuum and wash, detailing , etc, not including heavy maintenace as A/C replacement. And I get $.54 deduction from my office job salary and TNC income which in turn gives me %25 * $.54 = $.13.5 cents in return.

So every my "dead mile" cost me let say between $.0 and $.07 cent. Am I right? What would be your math or opinion?

And yes, depreciation depends on the age of the car. It goes faster for newer car and slower for older.


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## Disgusted Driver (Jan 9, 2015)

Peterson said:


> Here is some starting information:
> I get $.54 deduction from my office job salary and TNC income which in turn gives me *%25 * $.54 = $.13.5 cents in return*.
> 
> So every my "dead mile" cost me let say between $.0 and $.07 cent. Am I right? What would be your math or opinion?


Not sure what you are doing there. Are you saying you are in the 25% bracket for federal tax?

OK, from a tax point of view, IF (and I think it's higher) your cost is 20 cents a mile and you are in the 25% bracket then yes, after taxes it's only costing you 7 cents. I think however that where you go wrong is that your depreciation is going to be much higher in the earlier years. These miles take a very heavy toll on a car. I've got 4500 rides in 26 months and can see the ground in grime in the seats that doesn't come out when cleaned, the scuffed plastic, the doors that don't close as crisply. All of that and more will affect resale. And then there is the value of your time, what is that worth. From a tax point, the IRS may be subsidizing your mileage but you still are putting your time into it.


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## Peterson (Jul 9, 2015)

Disgusted Driver said:


> Not sure what you are doing there. Are you saying you are in the 25% bracket for federal tax?
> OK, from a tax point of view, IF (and I think it's higher) your cost is 20 cents a mile and you are in the 25% bracket then yes, after taxes it's only costing you 7 cents.


Well, I went to see exactly how much taxes I pay, and I found that it is actually 4.5%, since I have a child and we are filling jointly with my wife. So every mile I make gives me 4.5% * $0.54 = 2.5 cents from tax deduction. And it costs me 20 cents to drive it. Definitely doesn't worth to drive it.



Disgusted Driver said:


> I think however that where you go wrong is that your depreciation is going to be much higher in the earlier years. These miles take a very heavy toll on a car. I've got 4500 rides in 26 months and can see the ground in grime in the seats that doesn't come out when cleaned, the scuffed plastic, the doors that don't close as crisply. All of that and more will affect resale. And then there is the value of your time, what is that worth. From a tax point, the IRS may be subsidizing your mileage but you still are putting your time into it.


Agree with the time point. Again a bit of math - if I drive 25 mph and let say paid for 75% of it by $0.85 minus 20% , it gives me 25 * 0.75 * $0.85 * 0.8 = $12.75 per hour, before tax, gas and all other expenses. If it costs me $.20 per mile then I get $12.75 - 25 miles * $.20 per mile = $7.5 before tax. Just a minimum wage and less. Not to mention potential problems with insurance in case of accident.


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## Papa Sarducci (Jun 20, 2016)

Depreciation is a waste of time for an Uber driver. The complication in computing it is high, especially if you use the vehicle for both personal and uber use, just take the mileage deduction.

Don't forget self employment tax.

See my other post entitled 'Investing in Gasoline'


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## UberTaxPro (Oct 3, 2014)

One thing people tend not to consider about depreciation and taxes is that depreciation has to be "recaptured" when you sell whatever it is you've depreciated for a gain. Probably not gonna have a gain when you sell your Uber car but you might when you sell your depreciated rental house. The home office deduction works the same way...has to be recaptured when you sell your house.


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## Fuzzyelvis (Dec 7, 2014)

Peterson said:


> Here is some starting information:
> 
> I located in Florida (0% state taxes)
> I have an office job that pay me let say 55k gross per year.
> ...


I love how you just ignore "heavy maintenance" as you call it. That's what goes up as depreciation goes down. And it goes up faster when you're driving commercially because the wear and tear is more per mile than commuting.


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## ChortlingCrison (Mar 30, 2016)

Aside from depreciation and gas, uber always manages to "leave out" the Big M (maintenance) expense. I can understand why some new drivers (with new car) might be duped into thinking that there's very little maintenance. That maybe true for the first couple of years. But then wham!! they start piling on. Of course it depends on how often you drive for uber/lyft.


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## Peterson (Jul 9, 2015)

UberTaxPro said:


> One thing people tend not to consider about depreciation and taxes is that depreciation has to be "recaptured" when you sell whatever it is you've depreciated for a gain. Probably not gonna have a gain when you sell your Uber car but you might when you sell your depreciated rental house. The home office deduction works the same way...has to be recaptured when you sell your house.


I am not sure I understand you correctly. Once car has been depreciated (lost his value due excess of mileage or age) is there way for depreciation to be "recaptured"? What does it mean? Price of the car goes back?


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## Disgusted Driver (Jan 9, 2015)

Peterson said:


> I am not sure I understand you correctly. Once car has been depreciated (lost his value due excess of mileage or age) is there way for depreciation to be "recaptured"? What does it mean? Price of the car goes back?


It doesn't really apply to cars very often since you are typically taking the standard mileage deduction instead of depreciation and depreciation of cars is complicated with limitations. If however you had the vehicle in service for many years and wrote off the value of the car over the years by depreciating it, at some point you will have written off the entire purchase price of the car, sheltering that much income from expenses. For tax purposes the car would now be worth zero. If you sell the car after that, anything you make on the vehicle would be a capital gain since you had already written off the value of the vehicle to zero but are now getting some money back for it.

Bottom line, stick to the .54 cents a mile, in almost all cases it's better and less headache unless you have an expensive vehicle for business purposes and don't drive it a lot.


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## UberTaxPro (Oct 3, 2014)

Peterson said:


> I am not sure I understand you correctly. Once car has been depreciated (lost his value due excess of mileage or age) is there way for depreciation to be "recaptured"? What does it mean? Price of the car goes back?


For example, suppose that you buy a car (or any business equipment) for $10,000 and use it for eight years. The total depreciation deduction is $6,000. Then you sell the car for $6,000. You must declare a "recaptured" gain of $2,000, the difference between the actual sales price and the depreciated tax basis of $4,000 ($10,000-$6,000).
It's all about the "tax basis" of the property. Depreciation lowers the tax basis. Don't worry about it to much...after a few years of ubering your car's resale value will be getting close to 0 anyway! The standard mileage deduction has a depreciation factor built in also. And yes, the IRS also expects you to recapture any depreciation from the built in SMD depreciation if you have a gain on a sale. So even using the SMD won't make you immune to the recapture rules. For 99.9% of Uber drivers it won't matter because their car will be almost worthless. Everyone's situation is different but for most uber drivers the SMD is still the way to go.


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## Peterson (Jul 9, 2015)

Ok, thank you, I got your point. As I understand it related to situation when there is a business that bought the car for the business purpose and then reports it's depreciation over the years. When I am ubering and, as I guess, absolute majority of other uber drivers, we do not have business/company for this purpose and didn't claim the car as business equipment. Therefore initial cost, reported depreciation and sell price (if any) are not reported. 
Yet I am wondering if IRS will try to intervene when/if I sell the car, in case I claimed over the years standart $0.54 deduction. And btw what part of those $.54 is depreciation? How then I or IRS can calculate "tax basis" change and compare it with reported depreciation?
Also taking your example of $10,000 initial price of the car, $6000 reported depreciation and sell price of $6000, wouldn't it to be violation from IRS point of view as you reported more deduction than it was by fact and therefore didn't pay enough taxes during each of those 8 years? In case of car the difference isn't that big, but in case of expensive equipment 10-100 times more expensive than the car it might be substantial.


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## LAuberX (Jun 3, 2014)

turn on app, write down odometer reading.

turn off app, write down odometer reading.

take standard deduction on your fed taxes.

done.


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## the rebel (Jun 12, 2016)

Peterson said:


> Well, I went to see exactly how much taxes I pay, and I found that it is actually 4.5%, since I have a child and we are filling jointly with my wife. So every mile I make gives me 4.5% * $0.54 = 2.5 cents from tax deduction. And it costs me 20 cents to drive it. Definitely doesn't worth to drive it.
> 
> Agree with the time point. Again a bit of math - if I drive 25 mph and let say paid for 75% of it by $0.85 minus 20% , it gives me 25 * 0.75 * $0.85 * 0.8 = $12.75 per hour, before tax, gas and all other expenses. If it costs me $.20 per mile then I get $12.75 - 25 miles * $.20 per mile = $7.5 before tax. Just a minimum wage and less. Not to mention potential problems with insurance in case of accident.


The problem you are missing is that your effective income tax rate will go up as you make more net income with driving, you could also end up in less for credits and schedule A deductions which are based on your gross taxable income. Married with a kid you are right in the 15-25% tax bracket range meaning that depending on income your income taxes will likely be 25% for net profit from Ubering. Not to mention self employment tax, which is 15.3% of all income from Uber as a contractor. So realistically 40% of your net profit after all deductions is what you need to calculate for taxes.


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## the rebel (Jun 12, 2016)

Peterson said:


> Ok, thank you, I got your point. As I understand it related to situation when there is a business that bought the car for the business purpose and then reports it's depreciation over the years. When I am ubering and, as I guess, absolute majority of other uber drivers, we do not have business/company for this purpose and didn't claim the car as business equipment. Therefore initial cost, reported depreciation and sell price (if any) are not reported.
> Yet I am wondering if IRS will try to intervene when/if I sell the car, in case I claimed over the years standart $0.54 deduction. And btw what part of those $.54 is depreciation? How then I or IRS can calculate "tax basis" change and compare it with reported depreciation?
> Also taking your example of $10,000 initial price of the car, $6000 reported depreciation and sell price of $6000, wouldn't it to be violation from IRS point of view as you reported more deduction than it was by fact and therefore didn't pay enough taxes during each of those 8 years? In case of car the difference isn't that big, but in case of expensive equipment 10-100 times more expensive than the car it might be substantial.


Standard mileage in not considered depreciation under the IRS rules, although depreciation is used in the calculation. Meaning you do not have to recapture depreciation on a vehicle you used standard mileage to write off.


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## UberTaxPro (Oct 3, 2014)

the rebel said:


> Standard mileage in not considered depreciation under the IRS rules, although depreciation is used in the calculation. Meaning you do not have to recapture depreciation on a vehicle you used standard mileage to write off.


The IRS requires that you report the "depreciation equivalent" of the standard mileage rate when you sell a vehicle.


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## UberTaxPro (Oct 3, 2014)

the rebel said:


> Standard mileage in not considered depreciation under the IRS rules, although depreciation is used in the calculation. Meaning you do not have to recapture depreciation on a vehicle you used standard mileage to write off.


From IRS pub. 463: "*Depreciation adjustment when you used the standard mileage rate.* If you used the standard mileage rate for the business use of your car, depreciation was included in that rate. The rate of depreciation that was allowed in the standard mileage rate is shown in the _Rate of Depreciation Allowed in Standard Mileage Rate_ table, later. You must reduce your basis in your car (but not below zero) by the amount of this depreciation."


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## UberTaxPro (Oct 3, 2014)

Peterson said:


> Ok, thank you, I got your point. As I understand it related to situation when there is a business that bought the car for the business purpose and then reports it's depreciation over the years. When I am ubering and, as I guess, absolute majority of other uber drivers, we do not have business/company for this purpose and didn't claim the car as business equipment. Therefore initial cost, reported depreciation and sell price (if any) are not reported.
> Yet I am wondering if IRS will try to intervene when/if I sell the car, in case I claimed over the years standart $0.54 deduction. And btw what part of those $.54 is depreciation? How then I or IRS can calculate "tax basis" change and compare it with reported depreciation?
> Also taking your example of $10,000 initial price of the car, $6000 reported depreciation and sell price of $6000, wouldn't it to be violation from IRS point of view as you reported more deduction than it was by fact and therefore didn't pay enough taxes during each of those 8 years? In case of car the difference isn't that big, but in case of expensive equipment 10-100 times more expensive than the car it might be substantial.


You might not think you're running a business but the IRS definitely does. As an Uber driver you're a business owner whether you feel like it or not! You are the business and company now. You need to start thinking this way and familiarize yourself with all the laws and regulations regarding self employment and business matters.


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## Larry1024 (Jul 25, 2016)

And if you are lazy like you can just get triplogmileage app installed to track all your miledge for you and have it ina form that the IRS will accept


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