Q. My previous tax preparer told me I need to keep track of my business mileage until I sell my vehicle. Since I take the standard mileage rate, I don't understand the need to keep track of it. Please explain, why? JA, Iowa
A. One of the elements in using the standard mileage rate for business use of a vehicle includes depreciation. As an example, if you drove your vehicle 10,000 miles for business usage in 2009 and used the standard rate of 50 cents, 23 cents of that 50 cents or $2,300 was considered to be depreciation. You would need to reduce the cost basis of your vehicle by the $2,300, the depreciation allowed in 2009.
Tax Tip: When using a vehicle for business use, even if claiming the standard mileage rate, you must also calculate the amount of depreciation taken. You will need this cumulative figure when you dispose of the vehicle. Since most vehicles are used for both business and pleasure, when disposing of the vehicle, you need to prorate the sales (or trade-in) price of the vehicle and report either the gain or loss on the sale.