A fleet is indispensable for many companies to ensure smooth operations. When acquiring vehicles such as cars, vans, and trucks, it is crucial to be acquainted with depreciation rules as they are mandatory. This article addresses the key aspects of car and other vehicle depreciation in the fleet. Additionally, we provide you with a comprehensive overview of the applicable regulations.
Car Depreciation: What Does It Mean?
Depreciation is a fundamental element of the tax treatment of company vehicles. Depreciation refers to the decrease in value of long-term assets over time. Depreciation is spread over the useful life of the asset and is intended to realistically reflect the actual value of the asset and the profit. Furthermore, it is designed to have a tax-reducing effect. Depreciation of vehicles is done on a linear basis, meaning the vehicle’s value is evenly spread over its useful life. The vehicle’s useful life plays a crucial role in this process. The amount of depreciation depends on the purchase price and the vehicle’s useful life.
How is depreciation calculated?
The acquisition costs of the company car consist of the purchase price, acquisition-related costs such as delivery charges and special equipment, minus discounts or rebates. If input tax deduction is possible, the value-added tax does not play a role in depreciation. Otherwise, it should be included in the acquisition costs.
The useful life of a car can vary and depends on various factors such as the type of vehicle and its usage. However, a typical useful life falls between 5 and 10 years. The standardized depreciation table in Germany (AfA) generally prescribes a useful life of 6 years for cars. This means that the car is fully depreciated in the company’s books after 6 years. It is important to note that the actual useful life of a car may vary based on individual circumstances.
Depreciation Amount: With a useful life of 6 years, this results in a linear depreciation of 16.67% per year, which can be recorded as an operating expense. In specific cases – when the vehicle is used for business purposes more than 90% of the time and other tax requirements are met – a special depreciation of 20% can be claimed in the first year.
Useful Life for Vans and Trucks
The AfA table specifies a useful life of 9 years for vans, trucks, and tractor units, and 11 years for trailers.
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Depreciation of Cars: Used Vehicles
The useful life of six years also applies to used vehicles. The age of the vehicle affects depreciation and allows for higher depreciation rates:
- A two-year-old vehicle still has a remaining useful life of four years and can be depreciated annually at 25%.
- After three years, the remaining useful life is three years, and depreciation increases to 33%.
- For vehicles over four years old, a remaining useful life of two years is assumed.
- From the age of six years, 50% of the purchase price can be depreciated annually.
The higher depreciation typically offsets the lower purchase price and potentially higher repair or service costs for older vehicles.
Depreciation of Commercially Used Electric Vehicles
The tax treatment of electric vehicles in the fleet has been changed in recent years to promote electromobility. Since 2020, businesses can claim an increased depreciation allowance for commercially used electric vehicles. This allowance is 50% of the purchase cost and can be claimed in addition to the regular depreciation. The usual depreciation period for electric vehicles is currently typically six years. It’s important to stay informed about the current regulations and incentives to maximize the tax benefits of electric vehicles.
Sale and Early Depreciation of Vehicles
In some cases, it may be necessary to dispose of a vehicle from the fleet or to depreciate it prematurely. This can occur, for example, when a vehicle can no longer be economically used or is being removed from the fleet. In the case of an early sale or depreciation, the current book value of the vehicle must be taken into account. In a sale, the achieved selling price is compared to the book value, and the profit or loss is treated accordingly. An early depreciation also occurs when the vehicle is removed from the company’s assets, e.g., due to an accident or theft.
Private Use of a Company Car: The 1% Rule and Mileage Log
In the case of private use of a company car, the taxable benefit competes with depreciation. A common method for calculating the taxable benefit is the so-called 1% rule.
Monthly, 1% of the gross list price of the vehicle is taxed as a taxable benefit. Alternatively, a mileage log can also be maintained to document the actual portion of private usage.
This requires accurate recording of all trips and their purposes. It’s important to choose the method that is most advantageous for the company to optimize the tax burden.
The Alternative to Car Ownership: Leased Vehicles or Car Subscriptions
In leasing, the lessee only pays for the use of the vehicle, while the car itself remains the property of the lessor. Therefore, no depreciations are required, and the lessee pays only a monthly fee that is deductible as operating expenses. This preserves the liquidity of the company and allows for the use of a new car even when the entire capital for the purchase price is not available. The amount of the lease payments depends on the contract duration, mileage, and optional service packages. For those seeking a highly flexible model, trying out a car subscription is an option, where durations often start from one month and offer a wide selection of immediately available models. Read more here about which financing option may be suitable for you.
Car Subscription Module
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Car Depreciation: Accounting and Tax Documentation
Accurate bookkeeping and tax documentation are crucial for the proper treatment of vehicle depreciation in the fleet. It is advisable to meticulously maintain all relevant documents such as purchase contracts, invoices, and mileage logs. This allows for a precise tracking of acquisition costs, useful life, and depreciation amounts. Professional accounting can assist in keeping a clear overview of vehicle depreciation and maximizing tax benefits.
The KePoints Regarding Depreciation for Cars, Trucks, and Vans
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