Car depreciation depends on many factors: how is it calculated?
Depreciation, usually also depreciation, is a term that expresses the rate of wear and tear of an object. In practice, it is most often used in connection with the purchase, operation, and sale of a car. In practice, the JunkCarsUS team will help you with this and other questions about junk cars for cash in Louisville or another city.
Car depreciation is typically faced by employees on business trips or entrepreneurs when keeping tax records. Also, automobile business companies and insurance companies work with it.
Depreciation in 2022
The concept of vehicle depreciation should be divided into two categories: physical and moral wear and tear.
A gradual decrease in the value of a car caused by the influence of external conditions is called physical wear and tear. In addition to the actual aging of the vehicle from the date of production, this includes, for example, the way the vehicle is used, its maintenance, or climatic conditions (garage or open parking). Due to technical progress, the age of the vehicle is also manifested in obsolescence.
Depreciation of a car cannot be expressed only by single tables. The rate at which the price of a car falls is individual and depends on the combination of physical and moral wear of each car.
What does car depreciation depend on?
- brand, type, and drive of the car
- equipment and additional modifications
- method and authenticity of purchase (car dealership, car showroom, import, advertising, etc.)
- a form of use (private, company car, transportation of people or materials, etc.)
- the amount of mileage
- breakdowns and repairs
- maintenance and parking method (garage, on the street)
- number of previous owners
Vehicle depreciation is usually used when selling and buying a car, in accounting, when using a private vehicle for commercial purposes, and in the insurance industry.
Calculation of depreciation
To calculate the depreciation of vehicles, there are many free calculators available on the Internet, and you can also use the offers of commercial services.
To calculate depreciation, it is necessary to enter the basic data from the vehicle’s technical passport (make, model, engine, year of manufacture, transmission, drive, and color).
Withdrawal of a vehicle from operation
Use the service if you want to declare your car, motorcycle, or other vehicles temporarily out of service. The decommissioning takes effect immediately after the declaration and is valid until further notice.
If you are not currently using the vehicle, you can temporarily withdraw it from traffic and save on the cost of the vehicle. Withdrawal from the road takes effect immediately. However, you can use the vehicle until the end of the removal period if the periodic inspection and road insurance are valid, the license plates are attached and the vehicle tax is paid. Thereafter, the vehicle taken out of service may not be driven until it is put back into service, except in exceptional situations specified separately.
Decommissioning is valid until further notice and cannot be done in advance, retroactively, or for a fixed period of time. The license plate does not need to be returned upon withdrawal.
Impact on payments
No vehicle tax is payable for the period of decommissioning (except for the date of decommissioning). Vehicle tax paid in excess will be refunded with the next tax receipt unless you apply for a refund. If you take the vehicle out of road use on the road between depreciation deductions, a vehicle tax receipt will always be sent for the period of use (the minimum amount of vehicle tax to be paid).
The impact of decommissioning on the insurance premium depends on your insurance contract. Check the consequences of your own insurance company. Decommissioning is updated in the information of insurance companies with a delay of several days. If you want to decide to completely terminate your car insurance, conclude a separate agreement with your insurance company.
If you have sold your car, you can no longer take it out of service. You can terminate your obligations to pay vehicle tax and traffic rules by submitting a transfer notice. However, if the vehicle has been taken for registration abroad, you can decommission it abroad.
If you are never going to use the vehicle again, make a final write-off.
To clarify the price after depreciation, the data from the above table on equipment, mileage, number of owners, operational issues, or service history is used for the calculation.
Depreciation for entrepreneurs and business trips
The situation is different when calculating the depreciation of a car for business accounting and when using a private car for business trips.
When applying depreciation to taxes, entrepreneurs have two options:
1. The car is not a business asset
If entrepreneurs do not classify the car as a business asset, they accrue depreciation for each kilometer driven.
However, the car cannot be the object of financial leasing declared as a non-taxable expense.
If these conditions are met, the basic rate of depreciation of vehicles can be applied as a non-taxable expense for each business trip, except for reimbursement of fuel costs.
2. Car owned by the company
From an accounting point of view, a car is a long-term asset that can be classified as a business asset. The gradual depreciation then reduces the tax base and spreads the costs over several periods.
To calculate depreciation, you need to work with the purchase price of the car and the annual depreciation rate or with the residual value and depreciation rates.
It is depreciated either evenly over five years or accelerated when most of the car’s value is written off in the first few years.
Private car for business trips
In practice, it is quite common for an employee to use his/her own car for business trips with the permission of the employer.
The condition is that the employee must be the owner of the car. Therefore, the car cannot be borrowed, rented, or transferred to the ownership of the employer.
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- Skoda Plus
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- Proven Peugeot cars
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Used vehicles after the end of an operating lease have the advantage, firstly, that the history of the car after the first owner is well traced. The disadvantage is a limited range of vehicles and in some cases more users/drivers of cars that are mostly operated as company cars.