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If you have a sixty-month loan, by the time you pay it off, your car loses as much as 60 percent of what it was worth when you bought it. With that said, cars depreciate differently over time.
Depreciation is a concept and a method that recognizes that some business assets become less valuable over time and provides a way to calculate and record the effects of this.
The most common tax depreciation method used in the U.S. is the Modified Accelerated Cost Recovery System or MACRS. This accelerates depreciation and provides greater deductions in the early years.
Car finance comprises the different financial products which allows someone to acquire a car with any arrangement other than a single lump payment. When used, and for the purpose of assessing the private financial costs, one must consider only the interests paid by the car owner, as some part of the amount the owner pays each month for the finance is already embedded in the depreciations costs.
Example: A car is sold at a list price of $20,000 today. After a usage of 36 months and 50,000 miles (ca. 80,467 km) its value is contractually defined as $10,000 or 50%. The credited amount, on which the interest is applied, thus is $20,000 present value minus the present value of $10,000 future value.
Additional Depreciation is the portion of Accumulated Depreciation in excess of straight line. It is taxed at ordinary income tax rates, which have a maximum rate of 39.6% or 37% after 2018(to the extent of any gain realized).