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Is vehicle depreciation a real cost to be considered if you never planned on selling your car?

Discussion in 'Advice' started by Mordred, Jan 5, 2019.

  1. dmoney155

    dmoney155

    Location:
    Toronto
    Driving:
    UberSELECT
    By this thinking...auto makers would be in a deep deep trouble.

    Let's hope not... I'm at 130,000kms so ~81,000 miles .
     
  2. UberLaLa

    UberLaLa

    Location:
    LaLa Land
    Oh, I'm talking 300,000 miles. If you are talking kilometers and I'm talking miles, we are on the same page then. 150,000 - 200,000 miles or 300,000 kilometers.
     
  3. Christinebitg

    Christinebitg

    Location:
    Houston
    Driving:
    UberX
    Actually, the cheeseburger is an example of DEPLETION, rather than depreciation.

    Depreciation is when something wears out. Depletion (think oil wells for instance) is when an asset is consumed.

    And like depreciation, depletion also has statutory values that are allowed to be applied.
     
  4. Sure you can. There are at least two ways of doing it--

    1. You set a target mileage (say 200,000 miles (or 250k or 300k)) and take the purchase price per mile against that number. If you exceed that target mileage, you stop accounting for purchase price on any future miles. If you do not reach that target mileage, you take the difference as a one time charge.

    2. You just set your formula to adjust as you add miles. Using this method, the final total won't be set in stone until you retire the vehicle, but the running total will just adjust your purchase costs downward and your net revenue upward as you add miles. This wouldn't be as accurate on a year over year basis, but it would tell you overall how profitable that particular vehicle was during its lifetime. To me, that's a pretty powerful metric that can inform you on what you should buy for your next vehicle.
     
  5. oldfart

    oldfart

    Location:
    Fort Myers
    Driving:
    UberXL

    I have owned apartment buildings and I depreciated them. And as a result I had no tax obligation, UNTIL I sold the buildings... My cash flow was great, but then there came the day that I sold the buildings and I owed taxes on not just the difference between what I paid for the buildings and the sale price, but from the depreciated value and the sale price... A little thing called "recapture" rose up to bite me in the ass Depreciation is important when you do your taxes, and thats all

    Your apartment example is a bad example for you to use to show how depreciation works for a car or other asset that really does depreciate

    You will have a number that is exactly what you made, and if thats important to you, by all means do the calculation. But wou wont be prepared to buy another car unless you build a savings account at the same time as you depreciate the old one.. If you plan on buying a more expensive car you need to save faster than you depreciate, and if you plan on a cheaper car you can save less than you depreciate. Either way the cost of your old car (depreciation, has nothing to do with buying that new car and if you arent prepared your business is likely over

    So Im not saying your car doesn't depreciate. and Im not saying depreciation isnt real, Its just that it doesn't. really matter. to your success. I wasnt prepared to pay my taxes when I sold my apartments and you wont be prepared to buy a new car, when your old one craps out



    As I have been saying you dont know exactly what your depreciation is until you dispose of the asset. and so you dont know what your net profit or loss is until then either.



    What you are not understanding is that I dont care what my net profit is.Thats only important for my tax preparation. I care that my business can survive when my car finally craps out, So its the size of the reserve account that's my concern
     
  6. UberLaLa

    UberLaLa

    Location:
    LaLa Land
    Tell OP, not me...
     
  7. weykool

    weykool

    Location:
    oc
    Everything you said is completely wrong.
    Every entity needs to know if they are profitable on an ongoing basis.
    Yes, depreciation is an estimate based on assumption of useful life.
    Anyone who ignores depreciation as an expense is doing it wrong.
    Stop confusing tax accounting with financial accounting.
     
  8. I have a couple of cars in what one can consider "High Mileage" about 160 000 miles without any real mechanic problems with it. What a lot of people forget is that car engines and transmission last a lot longer then they usually do because the car is only been turned on usually once per day and the car remains warm for the whole time.

    The biggest killer for the transmission and engine is short and quick trips. A lot of rideshare vehicles as long as they are properly maintained should in all essence last as long as any commercial vehicle on the road like a maintained taxi. I have a van that was used heavily and is quite high mileage at over 250 000 miles on the engine.

    One can buy a good vehicle $6000-8000 2nd hand and run it into the ground with the first major component failing either the engine or transmission or anything else on it that going to cost multiple thousand dollars down the road where the cost of repair is going to exceed the cost of the car at which point it time to buy another one.

    So let say you spent $8000 on that car put up 150 000 miles on it and the engine decided to die but in that time you made hundred thousand dollars out of it. Yes got oil, got insurance it got on road cost ect but that all fixed cost with new car or old car. If you can make ten times over what you bought the car for it and then it dies... In my books that worth running it into the ground. What more do you want? ;)

    For me particularly rideshare is about making as much $$ i can with the cars I have and keeping them until they one becomes too expensive to keep on the road or two, they age out. In which case I resell it for whatever I can get for it. A car is just a tool for you to make money and that all you should think it is good for. I got one car that going to age out by 2020 and by the time it comes around to 2020 it would of done about 220 000 miles on it by the rate it is incurring them right now. It not going die or anything it simply going to be too old for Rideshare so I got to sell it. The thing is... That it paid for itself a dozen times over.

    Everyone wants you to go out and buy a new car every year instead of using what you have because it feel absolutely amazing spending all that hard earned dollars into the latest greatest car. But that all the marketing and everyone fall for it. Buy that new car quick! Before your old car loses too much value! Sure... Only to be selling it to the next driver that is smart enough to realize a car is just a car and it supposed to be driven. Choose the car first that you want to drive in for the next 200 000 miles and you are happy with that purchase so you don't have the "Need" to buy that next shiny car.
     
    Last edited: Jan 9, 2019
    dctcmn likes this.
  9. oldfart

    oldfart

    Location:
    Fort Myers
    Driving:
    UberXL
    yes I need to know if Im making money or not, but I dont need to know down to the last penny, and I dont need to account for depreciation to know what I need know to operate my business

    I dont know the difference between tax accounting and financial accounting, but Im not confused.. I operate my business with an eye to cash flow.In Dec of 2017 I put my car into my rideshare business and at that time I estimated its value to be $18000. I know its going to have to be replaced at some time, and Im prepared for that, whether it happens tomorrow, or 2 years or 5 years from now.

    Last year my net income was $36000 (after all expenses except depreciation) Lets assume that number holds for the next 2 years. So if the car blows up now my income for the one year was $18000 (36-18 =18) and if it lasts another year my income for the 2 years will be $54000 (36+36-18) or $27000 per year and if it last 2 more years my income for the 3 years will be $90000 (36+36+36-18) or $30000 per year

    None of those numbers is important because I have been adding to my reserve account and I am able to buy a new car whenever I need one... I just dont need to know when the car is going to blow up(ie when it will be completely depreciated. to operate my business

    Heavy duty accounting (tax accounting or financial accounting) just isnt needed for me to know that I have a positive cashflow and that I have enough in the bank to buy a new car when I want or need one.

    In fact next year I dont need to consider depreciation or my reserve account at all, because I have enough saved to replace the car if it does blow up.
     
    Last edited: Jan 9, 2019
    T&W and Immoralized like this.
  10. As long as you put 10% of what you make gross away towards that next car you will be alright.

    A lot of people get caught up in perceive loss or perceived gains with the car they have instead of just focusing on what it is and what it should be is a throw away consumable. Once it gets too expensive to maintain it should have made multiple and quite often half a dozen or more times then what you bought it for.

    False economy on cars depreciating because it not disappearing. The metal on the car is worth something when it was made and the parts on the car is worth something when it was made and quite often the car is worth a lot more in pieces then it does whole. The major components of a car should in all essence last 200k miles or more.

    If you have a good reliable car that keeps on going and going... To me that a lucky car :D Like a golden goose. Why kill it? The next car you might get maybe a complete lemon. If you have a lucky car that making you $$ not giving you any drama or problems that a good car that should be rewarded and looked after not toss to the side.
     
    Last edited: Jan 9, 2019
    dctcmn likes this.
  11. Christinebitg

    Christinebitg

    Location:
    Houston
    Driving:
    UberX
    If the original poster isn't reading this thread, then it doesn't matter.
     
    T&W likes this.
  12. METRO3

    METRO3

    Location:
    Toronto
    Driving:
    Lyft
    I haven't read all the posts on here but I'm gonna make the point most cars won't live forever. If u do this full time ur gonna put a **** load of km on it. 300k to 400k ur car will experience really expensive problems where u will need to consider buying a new car. Now how are u gonna pay for that new car? I personally think it's stupid to finance or lease or even rent one. What u want to earn less each week aren't we already earning nothing so now u want to earn less? What ya gonna do when it's slow has **** as it is right now in my city? Use credit to pay for the lease payments. Nooo bad idea. So this is where depreciation as an expense comes in. U all should be putting some money away for the next car. Also most cities like mine have age restrictions so when ur car is too old u need to buy another one then you should be paying cash for it. Used or new.
     
    Last edited: Jan 9, 2019
    dmoney155 likes this.
  13. weykool

    weykool

    Location:
    oc
    Last year my net income was $36000 (after all expenses except depreciation) Lets assume that number holds for the next 2 years. So if the car blows up now my income for the one year was $18000 (36-18 =18) and if it lasts another year my income for the 2 years will be $54000 (36+36-18) or $27000 per year and if it last 2 more years my income for the 3 years will be $90000 (36+36+36-18) or $30000 per year

    I am not saying you need to calculate depreciation down to the penny, but the $18,000 you spent on your car is a significant number.
    If your car blows up now it is 50% of your income.
    If you make it 2 years it is 25% and for 3 years it is sill 16%.

    I don't prepare a formal financial statement but I do estimate what my cost per mile is and it includes depreciation even though I only paid $6400 for it.

    What about the drivers who spent $36,000 for a new car?
    The reason they would do such a stupid thing is because they ignore the cost of depreciation.
    The 54 cents a mile IRS deduction includes depreciation.
    If depreciation matters to the IRS is should matter to drivers as well.
     
    METRO3 likes this.
  14. oldfart

    oldfart

    Location:
    Fort Myers
    Driving:
    UberXL

    We are looking at the same information and coming to completely different conclusions
     
  15. oldfart

    oldfart

    Location:
    Fort Myers
    Driving:
    UberXL
    The money you set aside for that new car is not an expense, it’s income. Depreciation is expense. Now you my save at exactly the same rate your car depreciates so the two numbers would be equal (but opposite)

    But maybe not
    My car was worth $18000 when I put it into ride share and I expected to get 200000 rideshare miles out of it (at about 70000 miles a year) so my depreciation schedule is about 9 cents a mile or $6000 a year. My plan is to buy a more expensive car when this one wears out. A Chevy suburban for about $40000 so to do this thing right I need to build a $40000 savings account in 3 years so my reserve account need s to grow at a little more than $1000 a month

    My point is that depreciation is just not important to me (except to prepare taxes) what’s important is adding to that reserve account on a regular basis

    On the other hand maybe I’ll take the advice of so many here and buy a pos Prius for $6000. If I do that I don’t need to add to a reserve account at all. I already have more than that in savings

    Again, I’m not saying depreciation isn’t a reality. It is. But it’s just not important to the future of my business. Cash flow and enough cash flow to save for that new car is what’s important
     
  16. TomH

    TomH

    Location:
    Las Vegas
     
  17. UberBeemer

    UberBeemer Moderator

    Location:
    NW Chicago Suburbs
    Driving:
    UberSELECT
    I think you get a one-time deduction of $18k, or can depreciate on a graduated scale over 5 years.
     
  18. oldfart

    oldfart

    Location:
    Fort Myers
    Driving:
    UberXL
    Or you can use the irs standard deduction
     

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