Q. In July last year, I started as a rep for 3 different companies selling advertising for various campground directories. I purchased my car in 2010 and want to use the actual cost method as opposed to the mileage method. For depreciation purposes, I use the amount I paid for the car, right?
A. Maybe. The rule is the lesser of the FMV of your car when you place it into service or your cost. Most cars depreciate right after you drive them off the showroom floor, so you may have to use an amount less than you paid for your car. Check the Kelley Blue Book or Edmunds websites to get an estimated value of your car when you placed it into business use. IRS auditors are quite savvy about this basic rule.