If I bought a new car, and paid $2000 for an extended warranty, and I'm using the actual cost for deduction, can I deduct the entire amount of that? I know the max for the car itself is around $3000 deduction for the 1st year, but I wanted to know if the warranty counts as something separate that I can deduct completely the first year.
2007-10-18 19:19:36 · 4 answers · asked by Skytide 3 in Business & Finance ➔ Taxes ➔ United States
Since there is a maximum amount allowed for depreciation for a vehicle, I would not add the warranty to the basis of the car. Keep the warranty separate.
You cannot deduct the entire amount of the warranty the first year. If it is a 7 year warranty for example, you could deduct 1/7 of it each year as part of your actual expenses.
2007-10-19 01:29:43 · answer #1 · answered by ninasgramma 7 · 1⤊ 0⤋
You have to amortize the cost over the life of the warranty. You will have to elect the method in year one and may not change. You could do it over the number of years, i.e. 5 years and take 20% each year, or using the mileage. If the warranty covers 70,000 and you drive 15000 in year one and 20000 in year two you could deduct 21.42% (15/70) and 28.57% (20/70) respectively.
You also have to consider the business use percentage. If the car is 100% business then the above is true. If you will also use the car for personal reasons, then the deduction will be reduced by the personal use percentage. Can get complicated.
2007-10-18 23:53:46 · answer #2 · answered by extra_37 4 · 3⤊ 0⤋
I'd add the warranty into the price of the car and then depreciate the total.
2007-10-18 23:07:11 · answer #3 · answered by Bostonian In MO 7 · 0⤊ 1⤋
Extended warranty should be treated like insurance. And about the insurance:
Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method.
So may be it is best to follow bostonianinmo.
2007-10-19 00:43:50 · answer #4 · answered by MukatA 6 · 0⤊ 2⤋