43.7 Depreciation for Year Vehicle Is Disposed Of

If you dispose of your car, truck, or van before the end of the six-year recovery period, you are allowed a partial depreciation deduction for the year of disposition. The deduction depends on the depreciation method and convention being used.

If you were depreciating the vehicle under the half-year convention (43.5), you may claim for the year of disposition 50% of the deduction that would be allowed for the full year under the 200% or 150% declining balance method, or the straight-line method.

If you were depreciating the vehicle under the mid-quarter convention (43.5), your deduction for the year of disposition depends on the month of disposition. You deduct 87.5% of the full-year mid-quarter convention deduction (43.5) if the disposition occurred in October–December. If the disposition is in July–September, 62.5% of the full year’s deduction is allowed. Your deduction is 37.5% of the full-year deduction if the disposition is in April–June, or 12.5% of the full-year deduction if the disposition is in January–March.

EXAMPLE
In December 2008 you bought a used car costing $20,000 that you used exclusively for business until you sold it in April 2012. You depreciated the car under the mid-quarter convention.
For 2012, the year of disposition, the full-year deduction would be $1,775. The $1,775 annual ceiling (fifth-year ceiling for cars placed in service in 2008) is less than the $2,188 deduction (10.94% × $20,000) allowed under the fourth quarter 200% rate mid-quarter convention table (Table 43-5). Since the car was disposed of in April, you may deduct 37.5% of $1,775, or $666, on your 2012 return.
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