Ask a tax advisor on the topic of Income tax return

Depreciation of a company-owned used car

May 18, 2021 | 40,00 EUR | answered by Steuerberater Knut Christiansen

Hello,

This is about the depreciation of a company car.

In August 2020, I registered a commercial activity (besides my main job). For this, I bought a company car, as I have customer contact and cannot or do not want to appear there with an unattractive car. I fully allocated the car to the business assets.

Information about the car:
Purchase price: 26,900 EUR (25,000 Euro purchase price plus 1,900 Euro warranty)
Purchase date: 08/21/2020
Original price: 50,000 US $
First registration 07/2015
Mileage at time of purchase: 76,500 km

So at the time of purchase, the car was 5 years old. I plan to keep the company car for the next 5 years. Annual mileage will not exceed 6000-8000 km (especially not in times of Corona).

In my tax return for 2020, I had calculated with 6 years of depreciation plus a special depreciation of 20% in the first year of depreciation. Therefore, I would have fully depreciated the car after 5 years. I had clarified the possibility of special depreciation beforehand.
1.) Would this approach be suitable for the used car?

I also read (source: https://www.smart-rechner.de/abschreibung/ratgeber/abschreibung_pkw.php) that a 5-year-old used car can have a remaining useful life of 2 years and a depreciation of 50%.
2.) Does this mean that I could fully depreciate the car within 2 years?
3.) How should I depreciate this used car?
4.) If the depreciation value should be different after consulting with you, the question is how do I communicate this to the tax office? Is a written statement sufficient or do I have to submit a request for amendment? I have not yet received a tax assessment notice.

Furthermore, the tax office had requested a statement regarding the use of the company car, as they assume that I also use the company car privately. I can prove that I own two cars, one private and the company vehicle. I will inform the tax office of this in writing. Although the tax office did not ask for a logbook (only for a statement regarding the use of the vehicle), I am considering sending one anyway.
5.) How should I proceed here? Should I only send what the tax office asks for (to avoid further questions) or proactively include the logbook?

As mentioned at the beginning, I plan to keep the company car for the next 5 years. Since I do not know how my business will develop (especially because of Corona), it may of course be that I will end it again in 1-2 years if it does not pay off.
6.) What happens to the portion of the car that has already been depreciated? Do I have to pay that back?

Thank you for your help!

Steuerberater Knut Christiansen

Good day and thank you for using frag-einen.com!

I would like to answer your questions as follows:

1) Typically, a 5-year-old car is not depreciated for another 6 years, but the remaining useful life is estimated to be 2-4 years. However, longer use may be possible, especially if your annual mileage is low. Special depreciation can only be claimed if the business use is more than 90%, which would need to be proven or substantiated with a logbook.

2) The tax office would likely have no objections if you depreciate the vehicle for a shorter period, e.g. 2 years (see 1).

3) Personally, I would set the maximum useful life at 3 years and depreciate 33.33% each year (pro rata in the year of purchase and in the final year).

4) In general, it may be sufficient for the tax office if you inform them in writing of the shorter depreciation period. The tax office will then adjust the profit accordingly. However, the tax office often requires a revised EÜR and AVEÜR attachment. This can then be submitted separately from the income tax return.

5) The proportion of private use would need to be substantiated (e.g. with a logbook). Simply stating that the vehicle is not used privately is not sufficient. Therefore, I would recommend sending the logbook along with the information, as otherwise there is a risk that the tax office will tax the vehicle using the 1% method.

6) If you sell the car or transfer it to personal assets due to business cessation, you would need to pay tax on any potential book gain. This occurs when the sales/withdrawal value is higher than the book value at that time. For example, if the car has already been depreciated to 0 EUR but the actual value is still 5,000 EUR, the corresponding profit (5,000 EUR minus 0 EUR book value = 5,000 EUR) would increase the profit accordingly, which would then be taxed in that year.

I hope this answers your questions, but feel free to ask a free follow-up question if needed.

I would like to point out that this forum cannot replace a thorough and personal tax consultation, but is mainly intended to provide an initial tax assessment. By adding or omitting relevant information, the legal assessment of your issue could differ.

Kind regards,

Knut Christiansen
Tax advisor