U.S. Individual Income Tax Return

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Instructions for Form 2106

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2007

Department of the Treasury
Internal Revenue Service

Instructions for Form 2106
Employee Business Expenses
• Were not reimbursed by your

Section references are to the Internal
Revenue Code unless otherwise noted.

Purpose of Form

General Instructions

Use Form 2106 if you were an
employee deducting ordinary and
necessary expenses for your job. See
the flowchart below to find out if you
must file this form.

What’s New
Standard mileage rate. For 2007,
the standard mileage rate for each
mile of business use is 481/2 cents.
Limit on depreciation and section
179 deduction. For 2007, the
first-year limit on depreciation and
section 179 deduction for most
vehicles has increased to $3,060. For
trucks and vans, the first-year limit
remains $3,260. There is no longer a
higher limit for electric automobiles.
For more details, see page 8.

An ordinary expense is one that is
common and accepted in your field of
trade, business, or profession. A
necessary expense is one that is
helpful and appropriate for your
business. An expense does not have
to be required to be considered
necessary.
Form 2106-EZ. You may be able to
file Form 2106-EZ, Unreimbursed
Employee Business Expenses,
provided you:
• Use the standard mileage rate (if
claiming vehicle expense), and

employer for any expense (amounts
your employer included in box 1 of
your Form W-2 are not considered
reimbursements for this purpose).
See Form 2106-EZ to find out if you
qualify to file it.

Recordkeeping
You cannot deduct expenses for
travel (including meals unless you
used the standard meal allowance),
entertainment, gifts, or use of a car or
other listed property, unless you keep
records to prove the time, place,
business purpose, business
relationship (for entertainment and
gifts), and amounts of these
expenses. Generally, you must also
have receipts for all lodging expenses

Who Must File Form 2106
No

A Were you an employee during the year?

䊳 Do not file Form 2106.

See the instructions for Schedule C, C-EZ, E, or F.

Yes

䊲
B Did you have job-related business expenses?

No

䊳 Do not file Form 2106.

Yes

䊲
C Were you reimbursed for any of your business
expenses (count only reimbursements your employer
did not include in box 1 of your Form W-2)?

Yes
No

No

Yes

No

䊲
H Are your deductible expenses more than your
reimbursements (count only reimbursements your
employer did not include in box 1 of your Form W-2)?
For rules covering employer reporting of reimbursed
expenses, see the instructions for line 7.

䊲
G Is either (1) or (2) true?
1 You owned this vehicle and used the actual
expense method in the first year you used the
vehicle for business.
2 You used a depreciation method other than
straight line for this vehicle in a prior year.

䊲
File Form 2106 (but
see Notes below).

䊲
E Are you a reservist, a qualified performing artist, a fee-basis
state or local government official, or an individual with a
disability claiming impairment-related work expenses? See
the line 10 instructions for definitions.

Yes

䊲
F Did you use a vehicle in your job in 2007 that
you also used for business in a prior year?

D Are you claiming job-related vehicle,
travel, transportation, meals, or
䊳
entertainment expenses?

No
No

䊱
No

䊱
Yes

Do not file Form 2106. Enter expenses on Schedule A
䊳 (Form 1040), line 21 (or Schedule A (Form 1040NR), line
9). These expenses include business gifts, education
(tuition and books), home office, trade publications, etc.

䊲
Do not file Form 2106.

Yes
䊲
File Form 2106 (but
see Notes).

Yes 䊲
File Form 2106.

Cat. No. 64188V

Notes
● Generally, employee expenses are deductible only on
line 21 of Schedule A (Form 1040) (or line 9 of Schedule A
(Form 1040NR)). But reservists, qualified performing artists,
fee-based state or local government officials, and
individuals with disabilities should see the instructions for
line 10 to find out where to deduct employee expenses.
● Do not file Form 2106 if none of your expenses are
deductible because of the 2% limit on miscellaneous
itemized deductions.

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Instructions for Form 2106

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(regardless of the amount) and any
other expense of $75 or more.

Additional Information
For more details about employee
business expenses, see:
• Pub. 463, Travel, Entertainment,
Gift, and Car Expenses.
• Pub. 529, Miscellaneous
Deductions.
• Pub. 587, Business Use of Your
Home (Including Use by Daycare
Providers).
• Pub. 946, How To Depreciate
Property.

Specific Instructions
Part I—Employee
Business Expenses and
Reimbursements
Fill in all of Part I if you were
reimbursed for employee business
expenses. If you were not reimbursed
for your expenses, skip line 7 and
complete the rest of Part I.

Step 1—Enter Your
Expenses
Line 1. If you were a rural mail
carrier, you can treat the amount of
qualified reimbursement you received
as the amount of your allowable
expense. Because the qualified
reimbursement is treated as paid
under an accountable plan, your
employer should not include the
amount of reimbursement in your
income.
You were a rural mail carrier if you
were an employee of the United
States Postal Service (USPS) who
performed services involving the
collection and delivery of mail on a
rural route.
Qualified reimbursements.
These are the amounts paid by the
USPS as an equipment maintenance
allowance under a collective
bargaining agreement between the
USPS and the National Rural Letter
Carriers’ Association, but only if such
amounts do not exceed the amount
that would have been paid under the
1991 collective bargaining agreement
(adjusted for changes in the
Consumer Price Index since 1991).
If you were a rural mail carrier and
your vehicle expenses were:
• Less than or equal to your qualified
reimbursements, do not file Form
2106 unless you have deductible
expenses other than vehicle

expenses. If you have deductible
expenses other than vehicle
expenses, skip line 1 and do not
include any qualified reimbursements
in column A on line 7.
• More than your qualified
reimbursements, complete Part II of
Form 2106. Enter your total vehicle
expenses from line 29 on line 1 and
the amount of your qualified
reimbursements in column A on
line 7.
If you are a rural mail carrier
and received a qualified
CAUTION reimbursement, you cannot
use the standard mileage rate.

!

Line 2. The expenses of commuting
to and from work are not deductible.
See the line 15 instructions for the
definition of commuting.
Line 3. Enter lodging and
transportation expenses connected
with overnight travel away from your
tax home (defined next). Do not
include expenses for meals and
entertainment. For more details,
including limits, see Pub. 463.
Tax home. Generally, your tax
home is your regular or main place of
business or post of duty regardless of
where you maintain your family
home. If you do not have a regular or
main place of business because of
the nature of your work, then your tax
home is the place where you
regularly live. If you do not fit in either
of these categories, you are
considered an itinerant and your tax
home is wherever you work. As an
itinerant, you are never away from
home and cannot claim a travel
expense deduction. For more details
on the definition of a tax home, see
Pub. 463.
Generally, you cannot deduct any
expenses for travel away from your
tax home for any period of temporary
employment of more than 1 year.
However, this 1-year rule does not
apply for a temporary period in which
you were a federal employee certified
by the Attorney General (or his or her
designee) as traveling in temporary
duty status for the U.S. government
to investigate or prosecute a federal
crime (or to provide support services
for the investigation or prosecution of
a federal crime).
Incidental expenses. The term
“incidental expenses” means:
• Fees and tips given to porters,
baggage carriers, bellhops, hotel
maids, stewards or stewardesses and
others on ships, and hotel servants in
foreign countries;
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• Transportation between places of

lodging or business and places where
meals are taken, if suitable meals can
be obtained at the temporary duty
site; and
• Mailing cost associated with filing
travel vouchers and payment of
employer-sponsored charge card
billings.
Incidental expenses do not include
expenses for laundry, cleaning and
pressing of clothing, lodging taxes, or
the costs of telegrams or telephone
calls.
You can use an optional method
(instead of actual cost) for deducting
incidental expenses only. The amount
of the deduction is $3 a day for
incidental expenses paid or incurred
for travel away from home in 2007.
You can use this method only if you
did not pay or incur any meal
expenses. You cannot use this
method on any day you use the
standard meal allowance (defined in
the instructions for line 5).
Line 4. Enter other job-related
expenses not listed on any other line
of this form. Include expenses for
business gifts, education (tuition, fees
and books), home office, trade
publications, etc. For details,
including limits, see Pub. 463 and
Pub. 529.
If you are deducting home office
expenses, see Pub. 587 for special
instructions on how to report these
expenses.
If you are deducting depreciation
or claiming a section 179 deduction
for a cellular telephone or other
similar telecommunications
equipment, a home computer, etc.,
see Form 4562, Depreciation and
Amortization, to figure the
depreciation and section 179
deduction to enter on Form 2106,
line 4.
Do not include on line 4 any
educator expenses you deducted on
Form 1040, line 23, or any tuition and
fees you deducted on Form 1040,
line 34.
You may be able to take a
TIP credit for your educational
expenses instead of a
deduction. See Form 8863, Education
Credits, for details.
Do not include expenses for meals
and entertainment, taxes, or interest
on line 4. Deductible taxes are
entered on Schedule A (Form 1040),
lines 5 through 9 (or Schedule A
(Form 1040NR), lines 1 through 3).

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Instructions for Form 2106

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Employees cannot deduct car loan
interest.
Note. If line 4 is your only entry, do
not complete Form 2106 unless you
are claiming:
• Performing-arts-related business
expenses as a qualified performing
artist,
• Expenses for performing your job
as a fee-basis state or local
government official, or
• Impairment-related work expenses
as an individual with a disability.
See the line 10 instructions for
definitions. If you are not required to
file Form 2106, enter your expenses
directly on Schedule A (Form 1040),
line 21 (or Schedule A (Form
1040NR), line 9).
Line 5. Enter your allowable meals
and entertainment expense. Include
meals while away from your tax home
overnight and other business meals
and entertainment.
Standard meal allowance.
Instead of actual cost, you may be
able to claim the standard meal
allowance for your daily meals and
incidental expenses while away from
your tax home overnight. Under this
method, instead of keeping records of
your actual meal expenses, you
deduct a specified amount,
depending on where you travel.
However, you must still keep records
to prove the time, place, and
business purpose of your travel.
The standard meal allowance is
the federal M&IE rate. For most small
localities in the United States, this
rate is $39 a day for the period from
January 1 through December 31,
2007. Most major cities and many
other localities in the United States
qualify for higher rates. You can find
these rates on the Internet at www.
gsa.gov. At the GSA home page click
on “Per Diem Rates.” At the Domestic
Per Diem Rates page select “2007”
for the rates in effect for the period
January 1, 2007 –September 30,
2007. Select “2008” for the period
October 1, 2007 –December 31,
2007. However, you can apply the
rates in effect before October 1,
2007, for expenses of all travel within
the United States for 2007 instead of
the updated rates. For the period
October 1, 2007 –December 31,
2007, you must consistently use
either the rates for the first 9 months
of 2007 or the updated rates.
For locations outside the
continental United States, the
applicable rates are published each

month. You can find these rates on
the Internet at www.state.gov.
See Pub. 463 for details on how to
figure your deduction using the
standard meal allowance, including
special rules for partial days of travel
and transportation workers.

Step 2—Enter
Reimbursements Received
From Your Employer for
Expenses Listed in Step 1
Line 7. Enter reimbursements
received from your employer (or third
party) for expenses shown in Step 1
that were not reported to you in box 1
of your Form W-2. This includes
reimbursements reported under code
“L” in box 12 of Form W-2. Amounts
reported under code “L” are
reimbursements you received for
business expenses that were not
included as wages on Form W-2
because the expenses met specific
IRS substantiation requirements.
Generally, when your employer
pays for your expenses, the
payments should not be included in
box 1 of your Form W-2 if, within a
reasonable period of time, you:
• Accounted to your employer for the
expenses, and
• Were required to return, and did
return, any payment not spent (or
considered not spent) for business
expenses.
If these payments were included in
box 1, ask your employer for a
corrected Form W-2.
Accounting to your employer.
This means that you gave your
employer documentary evidence and
an account book, diary, or similar
statement to verify the amount, time,
place, and business purpose of each
expense. You are also treated as
having accounted for your expenses
if either of the following applies.
• Your employer gave you a fixed
travel allowance that is similar in form
to the per diem allowance specified
by the Federal Government and you
verified the time, place, and business
purpose of the travel for that day.
• Your employer reimbursed you for
vehicle expenses at the standard
mileage rate or according to a flat
rate or stated schedule, and you
verified the date of each trip, mileage,
and business purpose of the vehicle
use.
See Pub. 463 for more details.
Allocating your reimbursement.
If your employer paid you a single
amount that covers meals and
-3-

entertainment as well as other
business expenses, you must
allocate the reimbursement so that
you know how much to enter in
Column A and Column B of line 7.
Use the following worksheet to figure
this allocation.
Reimbursement Allocation
Worksheet
(keep for your records)
1. Enter the total amount of
reimbursements your
employer gave you that
were not reported to you
in box 1 of Form W-2 . . . .
2. Enter the total amount of
your expenses for the
periods covered by this
reimbursement . . . . . . . . .
3. Of the amount on line 2,
enter your total expense for
meals and entertainment . .
4. Divide line 3 by line 2.
Enter the result as a
decimal (rounded to
three places) . . . . . . . . . .
5. Multiply line 1 by line 4.
Enter the result here and
in Column B, line 7 . . . . . .
6. Subtract line 5 from line 1.
Enter the result here and
in Column A, line 7 . . . . . .

Step 3—Figure Expenses
To Deduct on Schedule A
(Form 1040 or Form 1040NR)
Line 9. Generally, you can deduct
only 50% of your business meal and
entertainment expenses, including
meals incurred while away from home
on business. However, if you were an
employee subject to the Department
of Transportation (DOT) hours of
service limits, that percentage is
increased to 75% for business meals
consumed during, or incident to, any
period of duty for which those limits
are in effect.
Employees subject to the DOT
hours of service limits include certain
air transportation employees, such as
pilots, crew, dispatchers, mechanics,
and control tower operators;
interstate truck operators and
interstate bus drivers; certain railroad
employees, such as engineers,
conductors, train crews, dispatchers,
and control operations personnel; and
certain merchant mariners.
Line 10. If you are one of the
individuals discussed below, special

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Instructions for Form 2106

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rules apply to deducting your
employee business expenses. Any
part of the line 10 total that is not
deducted according to the special
rules should be entered on Schedule
A (Form 1040), line 21 (or Schedule
A (Form 1040NR), line 9).
Ministers. Before entering your
total expenses on line 10, you must
reduce them by the amount allocable
to your tax-free allowance(s). See
Pub. 517 for more information.
Armed Forces reservist
(member of a reserve component).
You are a member of a reserve
component of the Armed Forces of
the United States if you are in the
Army, Navy, Marine Corps, Air Force,
or Coast Guard Reserve; the Army
National Guard of the United States;
the Air National Guard of the United
States; or the Reserve Corps of the
Public Health Service.
If you qualify, include the part of
the line 10 amount attributable to the
expenses for travel more than 100
miles away from home in connection
with your performance of services as
a member of the reserves on Form
1040, line 24, and attach Form 2106
to your return. These reserve-related
travel expenses are deductible
whether or not you itemize
deductions. See Pub. 463 for
additional details on how to report
these expenses.
Fee-basis state or local
government official. You are a
qualifying fee-basis official if you are
employed by a state or political
subdivision of a state and are
compensated, in whole or in part, on
a fee basis.
If you qualify, include the part of
the line 10 amount attributable to the
expenses you incurred for services
performed in that job in the total on
Form 1040, line 24, and attach Form
2106 to your return. These employee
business expenses are deductible
whether or not you itemize
deductions.
Qualified performing artist. You
are a qualified performing artist if you:
1. Performed services in the
performing arts as an employee for at
least two employers during the tax
year,
2. Received from at least two of
those employers wages of $200 or
more per employer,
3. Had allowable business
expenses attributable to the
performing arts of more than 10% of
gross income from the performing
arts, and

4. Had adjusted gross income of
$16,000 or less before deducting
expenses as a performing artist.
In addition, if you are married, you
must file a joint return unless you
lived apart from your spouse for all of
2007. If you file a joint return, you
must figure requirements (1), (2), and
(3) separately for both you and your
spouse. However, requirement (4)
applies to the combined adjusted
gross income of both you and your
spouse.
If you meet all the requirements,
include the part of the line 10 amount
attributable to performing-arts-related
expenses in the total on Form 1040,
line 24 (or Form 1040NR, line 34),
and attach Form 2106 to your return.
Your performing-arts-related business
expenses are deductible whether or
not you itemize deductions.
Disabled employee with
impairment-related work expenses.
Impairment-related work expenses
are the allowable expenses of an
individual with physical or mental
disabilities for attendant care at his or
her place of employment. They also
include other expenses in connection
with the place of employment that
enable the employee to work. See
Pub. 463 for more details.
If you qualify, enter the part of the
line 10 amount attributable to
impairment-related work expenses on
Schedule A (Form 1040), line 28 (or
Schedule A (Form 1040NR), line 16).
These expenses are not subject to
the 2% limit that applies to most other
employee business expenses.

Part II—Vehicle
Expenses
There are two methods for computing
vehicle expenses —the standard
mileage rate and the actual expense
method. You can use the standard
mileage rate for 2007 only if:
• You owned the vehicle and used
the standard mileage rate for the first
year you placed the vehicle in
service, or
• You leased the vehicle and are
using the standard mileage rate for
the entire lease period (except the
period, if any, before 1998).
You cannot use actual expenses
for a leased vehicle if you previously
used the standard mileage rate for
that vehicle.
If you have the option of using
either the standard mileage rate or
actual expense method, you should
figure your expenses both ways to
-4-

find the method most beneficial to
you. But when completing Form
2106, fill in only the sections that
apply to the method you choose.
If you were a rural mail carrier and
received an equipment maintenance
allowance, see the line 1 instructions.
For more information on the
standard mileage rate and actual
expenses, see Pub. 463.

Section A—General
Information
If you used two vehicles for business
during the year, use a separate
column in Sections A, C, and D for
each vehicle. If you used more than
two vehicles, complete and attach a
second Form 2106, page 2.
Line 11. Date placed in service is
generally the date you first start using
your vehicle. However, if you first
start using your vehicle for personal
use and later convert it to business
use, the vehicle is treated as placed
in service on the date you started
using it for business.
Line 12. Enter the total number of
miles you drove each vehicle during
2007. But if you converted your
vehicle during the year from personal
to business use (or vice versa), enter
the total miles for only the months
you drove the vehicle for business.
Line 13. Do not include commuting
miles on this line; commuting miles
are not considered business miles.
See the line 15 instructions for the
definition of commuting.
Line 14. Divide line 13 by line 12 to
figure your business use percentage.
However, if you converted your
vehicle during the year from personal
to business use (or vice versa),
multiply this percentage by the
number of months you drove the
vehicle for business and divide the
result by 12.
Line 15. Enter your average daily
round trip commuting distance. If you
went to more than one work location,
figure the average.
Commuting. Generally,
commuting is travel between your
home and a work location. However,
travel that meets any of the following
conditions is not commuting.
• You have at least one regular work
location away from your home and
the travel is to a temporary work
location in the same trade or
business, regardless of the distance.
Generally, a temporary work location
is one where your employment is
expected to last 1 year or less. See
Pub. 463 for more details.

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• The travel is to a temporary work

location outside the metropolitan area
where you live and normally work.
• Your home is your principal place
of business under section
280A(c)(1)(A) (for purposes of
deducting expenses for business use
of your home) and the travel is to
another work location in the same
trade or business, regardless of
whether that location is regular or
temporary and regardless of distance.
Line 16. If you do not know the total
actual miles you used your vehicle for
commuting during the year, figure the
amount to enter on line 16 by
multiplying the number of days during
the year that you used each vehicle
for commuting by the average daily
round trip commuting distance in
miles. However, if you converted your
vehicle during the year from personal
to business use (or vice versa), enter
your commuting miles only for the
period you drove your vehicle for
business.

Section B—Standard
Mileage Rate
You may be able to use the standard
mileage rate instead of actual
expenses to figure the deductible
costs of operating a passenger
vehicle, including a van, sport utility
vehicle (SUV), pickup, or panel truck.
If you want to use the standard
mileage rate for a vehicle you own,
you must do so in the first year you
place your vehicle in service. In later
years, you can deduct actual
expenses instead, but you must use
straight line depreciation.
If you lease your vehicle, you can
use the standard mileage rate, but
only if you use the rate for the entire
lease period (except for the period, if
any, before January 1, 1998).
If you use more than two vehicles,
complete and attach a second Form
2106, page 2, providing the
information requested in lines 11
through 22. Be sure to include the
amount from line 22 of both pages in
the total on Form 2106, line 1.
You can also deduct state and
local personal property taxes. Enter
these taxes on Schedule A (Form
1040), line 7. (Personal property
taxes are not deductible on Form
1040NR.)
If you are claiming the standard
mileage rate for mileage driven in
more than one business activity, you
must figure the deduction for each
business on a separate form or

schedule (for example, Form 2106 or
Schedule C, C-EZ, E, or F).

Section D—Depreciation of
Vehicles

Section C—Actual Expenses

Depreciation is an amount you can
deduct to recover the cost or other
basis of your vehicle over a certain
number of years. In some cases, you
can elect to expense, under section
179, part of the cost of your vehicle in
the year of purchase. For details, see
Pub. 463.

Line 23. Enter your total annual
expenses for gasoline, oil, repairs,
insurance, tires, license plates, and
similar items. Do not include state
and local personal property taxes or
interest expense you paid. Deduct
state and local personal property
taxes on Schedule A (Form 1040),
line 7. Employees cannot deduct car
loan interest.
Line 24a. If during 2007 you rented
or leased instead of using your own
vehicle, enter the cost of renting.
Also, include on this line any
temporary rentals, such as when your
car was being repaired, except for
amounts included on line 3.
Line 24b. If you leased a vehicle for
a term of 30 days or more, you may
have to reduce your deduction for
vehicle lease payments by an amount
called the inclusion amount. You may
have an inclusion amount if:

The lease term
began in:

And the vehicle’s
fair market value on
the first day of the
lease exceeded:

2007 . . . . . . . . . . . . . . . . . . . . $15,500
2005 or 2006 . . . . . . . . . . . . . .

15,200

2004 . . . . . . . . . . . . . . . . . . . .

17,500

2003 . . . . . . . . . . . . . . . . . . . .

18,000

1999 through 2002 . . . . . . . . . .

15,500

1997 or 1998 . . . . . . . . . . . . . .

15,800

If the lease term began before 1997, see
Pub. 463 to find out if you have an
inclusion amount.

See Pub. 463 to figure the
inclusion amount.
Line 25. If during 2007 your
employer provided a vehicle for your
business use and included 100% of
its annual lease value in box 1 of your
Form W-2, enter this amount on line
25. If less than 100% of the annual
lease value was included in box 1 of
your Form W-2, skip line 25.
Line 28. If you completed Section D,
enter the amount from line 38. If you
used Form 4562 to figure your
depreciation deduction, enter the total
of the following amounts.
• Depreciation allocable to your
vehicle(s) (from Form 4562, line 28).
• Any section 179 deduction
allocable to your vehicle(s) (from
Form 4562, line 29).
-5-

Vehicle trade-in. If you traded
one vehicle (the “old vehicle”) in on
another vehicle (the “new vehicle”) in
2007, there are two ways you can
treat the transaction.
1. You can elect to treat the
transaction as a tax-free disposition
of the old vehicle and the purchase of
the new vehicle. If you make this
election, you treat the old vehicle as
disposed of at the time of the trade-in.
The depreciable basis of the new
vehicle is the adjusted basis of the
old vehicle (figured as if 100% of the
vehicle’s use had been for business
purposes) plus any additional amount
you paid for the new vehicle. You
then figure your depreciation
deduction for the new vehicle
beginning with the date you placed it
in service. You make this election by
completing Form 2106, Part II,
Section D.
2. If you do not make the election
described in (1), you must figure
depreciation separately for the
remaining basis of the old vehicle and
for any additional amount you paid for
the new vehicle. You must apply two
depreciation limits (see page 8). The
limit that applies to the remaining
basis of the old vehicle generally is
the amount that would have been
allowed had you not traded in the old
vehicle. The limit that applies to the
additional amount you paid for the
new vehicle generally is the limit that
applies for the tax year it was placed
in service, reduced by the
depreciation allowance for the
remaining basis of the old vehicle.
You must use Form 4562 to compute
your depreciation deduction. You
cannot use Form 2106, Part II,
Section D.
If you elect to use the method
described in (1), you must do so on a
timely filed tax return (including
extensions). Otherwise, you must use
the method described in (2).
Line 30. Enter the vehicle’s actual
cost (including sales tax, unless
deducted) or other basis (unadjusted
for prior years’ depreciation). If you
traded in your vehicle, your basis is

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the adjusted basis of the old vehicle
(figured as if 100% of the vehicle’s
use had been for business purposes)
plus any additional amount you pay
for your new vehicle. Reduce your
basis by any deductible casualty loss,
alternative motor vehicle credit,
qualified electric vehicle credit, gas
guzzler tax, or deduction for
clean-fuel vehicles you claimed.
If you converted the vehicle from
personal use to business use, your
basis for depreciation is the smaller of
the vehicle’s adjusted basis or its fair
market value on the date of
conversion.
Line 31. If 2007 is the first year your
vehicle was placed in service and the
percentage on line 14 is more than
50%, you can elect to deduct as an
expense a portion of the cost (subject
to a yearly limit). To calculate this
section 179 deduction, multiply the
part of the cost of the vehicle that you
choose to expense by the percentage
on line 14. The total of your
depreciation and section 179
deduction generally cannot be more
than the percentage on line 14
multiplied by the applicable limit
explained in the line 36 instructions
(beginning on page 7). Your section
179 deduction for the year cannot be
more than the income from your job
and any other active trade or
business on your Form 1040.
If you are claiming a section
179 deduction on other
CAUTION property, or you placed more
than $500,000 of section 179
property in service during the year,
use Form 4562 to figure your section
179 deduction. Enter the amount of
the section 179 deduction allocable to
your vehicle (from Form 4562, line
12) on Form 2106, line 31.
Note. For section 179 purposes,
the cost of the new vehicle does not
include the adjusted basis of the
vehicle you traded in.
Example.

!

Cost including taxes . . . . . . . .

$25,000

Adjusted basis of trade-in . . . .

− 3,000

Section 179 basis . . . . . . . . . .

$22,000

Limit on depreciation and
section 179 deduction . . . . . . .

$ 3,060

Smaller of:
Section 179 basis, or limit on
depreciation and section 179
deduction . . . . . . . . . . . . . . .

$ 3,060

Percentage on line 14 . . . . . . .

× .75

Section 179 deduction . . . . . .

$ 2,295

Limit for sport utility and certain
other vehicles. For sport utility and
certain other vehicles placed in
service in 2007, the portion of
vehicle’s cost taken into account in
figuring your section 179 deduction is
limited to $25,000. This rule applies
to any 4-wheeled vehicle primarily
designed or used to carry passengers
over public streets, roads, or
highways, that is not subject to any of
the passenger automobile limits
explained in the line 36 instructions,
and is rated at no more than 14,000
pounds gross vehicle weight.
However, the $25,000 limit does not
apply to any vehicle:
• Designed to have a seating
capacity of more than nine persons
behind the driver’s seat, or
• Equipped with a cargo area of at
least 6 feet in interior length that is an
open area or is designed for use as
an open area but is enclosed by a
cap and is not readily accessible
directly from the passenger
compartment, or
• That has an integral enclosure,
fully enclosing the driver
compartment and load carrying
device, does not have seating
rearward of the driver’s seat, and has
no body section protruding more than
30 inches ahead of the leading edge
of the windshield.
Special depreciation allowance.
You may be able to claim a special
depreciation allowance for your new
vehicle if:
• You purchased it on or after August
28, 2005,
• You placed it in service during
2007,
• The percentage on line 14 is more
than 50%, and
• Your vehicle is qualified Gulf
Opportunity (GO) Zone property.
The special allowance is an
additional first year depreciation
deduction of 50% of the depreciable
basis of your vehicle. However, your
total section 179 deduction, special
depreciation allowance, and regular
depreciation deduction cannot be
more than $3,060 for cars and $3,260
for trucks and vans. See the line 36
instruction for depreciation limits.
You can elect not to claim the GO
Zone special depreciation allowance
for your car. If you make this election,
it applies to all property in the same
class placed in service during the
year.
To make the election, attach a
statement to your return indicating
that you are electing not to claim the
GO Zone special depreciation
-6-

allowance and the class of property
for which you are making the election.
See Pub. 463, chapter 4, for more
information on the special
depreciation allowance.
Use the worksheet below to figure
the amount of the special
depreciation allowance.
Worksheet for the Special
Depreciation Allowance
(keep for your records)
1. Enter the total amount from
line 30 . . . . . . . . . . . . . . . .
2. Multiply line 1 by the
percentage on Form 2106,
line 14, and enter the result
3. Enter any section 179
deduction . . . . . . . . . . . . . .
4. Subtract line 3 from line 2 . .
5. Multiply line 4 by 50% (.50)
and enter the result . . . . . . .
6. Multiply the applicable limit
explained in the line 36
instructions by the percentage
on Form 2106, line 14, and
enter the result. If line 36
limits do not apply, skip lines
6 and 7, and enter the amount
from line 5 on line 8 . . . . . . .
7. Subtract line 3 from line 6 . .
8. Enter the smaller of line 5 or
line 7. Add the result to any
section 179 deduction (line 3
above) and enter the total on
Form 2106, line 31 . . . . . . .

Line 32. To figure the basis for
depreciation, multiply line 30 by the
percentage on line 14. From that
result, subtract the full amount of any
section 179 deduction and special
depreciation allowance.
Line 33. If you used the standard
mileage rate in the first year the
vehicle was placed in service and
now elect to use the actual expense
method, you must use the straight
line method of depreciation for the
vehicle’s estimated useful life.
Otherwise, use the Depreciation
Method and Percentage Chart (page
7) to find the depreciation method
and percentage to enter on line 33.
To use the chart, first find the date
you placed the vehicle in service (line
11). Then, select the depreciation
method and percentage from column
(a), (b), or (c). For example, if you
placed a car in service on July 1,
2007, and you use the method in
column (a), enter “200 DB 20%” on
line 33.

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Depreciation Method and Percentage Chart — Line 33
(a)1

Date Placed in Service

(b)1

Oct. 1 – Dec. 31, 2007

200 DB

Jan. 1 – Sept. 30, 2007

200 DB

20.0

150 DB

15.0

SL

10.0

Oct. 1 – Dec. 31, 2006

200 DB

38.0

150 DB

28.88

SL

20.0

Jan. 1 – Sept. 30, 2006

200 DB

32.0

150 DB

25.5

SL

20.0

Oct. 1 – Dec. 31, 2005

200 DB

22.8

150 DB

20.21

SL

20.0

Jan. 1 – Sept. 30, 2005

200 DB

19.2

150 DB

17.85

SL

20.0

Oct. 1 – Dec. 31, 2004

200 DB

13.68

150 DB

16.4

SL

20.0

Jan. 1 – Sept. 30, 2004

200 DB

11.52

150 DB

16.66

SL

20.0

Oct. 1 – Dec. 31, 2003

200 DB

10.94

150 DB

16.41

SL

20.0

Jan. 1 – Sept. 30, 2003

200 DB

11.52

150 DB

16.66

SL

20.0

Oct. 1 – Dec. 31, 2002

200 DB

9.58

150 DB

14.35

SL

17.5

Jan. 1 – Sept. 30, 2002

200 DB

5.76

150 DB

8.33

SL

10.0

Prior to

5.0 %

150 DB

(c)
3.75%

SL

2.5%

20022

1You

can use this column only if the business use of your car is more than 50%.
your car was subject to the maximum limits for depreciation and you have unrecovered basis in the car, you can continue to claim depreciation.
See Pub. 463 for more information.
2If

For vehicles placed in service
before 2007, use the same method
you used on last year’s return unless
a decline in your business use
requires a change to the straight line
method. For vehicles placed in
service during 2007, select the
depreciation method and percentage
after reading the explanation for each
column.
Column (a) —200% declining
balance method. You can use
column (a) only if the business use
percentage on line 14 is more than
50%. Of the three depreciation
methods, the 200% declining balance
method may give you the largest
depreciation deduction for the first 3
years (after considering the
depreciation limit for your vehicle).
See the depreciation limit tables on
page 8.
Column (b) —150% declining
balance method. You can use
column (b) only if the business use
percentage on line 14 is more than
50%. The 150% declining balance
method may give you a smaller
depreciation deduction than in
column (a) for the first 3 years.
However, you will not have a
“depreciation adjustment” on this
vehicle for the alternative minimum
tax. This may result in a smaller tax
liability if you must file Form 6251,
Alternative Minimum Tax —
Individuals.

Column (c) —straight line
method. You must use column (c) if
the business use percentage on line
14 is 50% or less. The method for
these vehicles is the straight line
method over 5 years. The use of this
column is optional for these vehicles
if the business use percentage on line
14 is more than 50%.
Note. If your vehicle was used more
than 50% for business in the year it
was placed in service and used 50%
or less in a later year, part of the
depreciation and section 179
deduction previously claimed may
have to be added back to your
income in the later year. Figure the
amount to be included in income on
Form 4797, Sales of Business
Property.
If you placed other business
property in service in the
CAUTION same year you placed your
vehicle in service or you used your
vehicle mainly within an Indian
reservation, you may not be able to
use the chart. See Pub. 946 to figure
your depreciation.
Line 34. If you sold or exchanged
your vehicle during the year, use the
following instructions to figure the
amount to enter on line 34.
If your vehicle was placed in
service:
1. Before 2002, enter the result of
multiplying line 32 by the percentage
on line 33;
2. After 2001, from January 1
through September 30, enter the

!

-7-

amount figured by multiplying the
result in (1) by 50%; or
3. After 2001, from October 1
through December 31, enter the
amount figured by multiplying the
result in (1) by the percentage shown
below for the month you disposed of
the vehicle.
Month

Percentage

Jan., Feb., March . . . . . . . .

12.5%

April, May, June . . . . . . . . .

37.5%

July, Aug., Sept. . . . . . . . . .

62.5%

Oct., Nov., Dec. . . . . . . . . .

87.5%

Line 36. Using the applicable chart
for your type of vehicle, find the date
you placed your vehicle in service.
Then, enter on line 36 the
corresponding amount from the
“Limit” column. Before using the
charts, please read the following
definitions.
• A passenger automobile is a
4-wheeled vehicle manufactured
primarily for use on public roads that
is rated at 6,000 pounds unloaded
gross vehicle weight or less (for a
truck or van, gross vehicle weight is
substituted for unloaded gross vehicle
weight). Certain vehicles, such as
ambulances, hearses, and taxicabs,
are not considered passenger
automobiles and are not subject to
the line 36 limits. See Pub. 463 for
more details.

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Instructions for Form 2106

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• A truck or van is a passenger
automobile built on a truck chassis,
including a minivan or a sport utility
vehicle built on a truck chassis.
If your vehicle is not subject to any
of the line 36 limits, skip lines 36 and
37, and enter the amount from line 35
on line 38.
Limits for Passenger Automobiles
(Except Trucks and Vans)
Date Vehicle Was
Placed in Service

Limit

Jan. 1 – Dec. 31, 2007 . . . . . .

$3,060

Jan. 1 – Dec. 31, 2006 . . . . . .

4,800

Jan. 1 – Dec. 31, 2005 . . . . . .

2,850

Jan. 1 – Dec. 31, 2004 . . . . . .

1,675

Jan. 1, 1995 – Dec. 31, 2003

1,775

Paperwork Reduction Act Notice.
We ask for the information on this
form to carry out the Internal
Revenue laws of the United States.
You are required to give us the
information. We need it to ensure that
you are complying with these laws
and to allow us to figure and collect
the right amount of tax.
You are not required to provide the
information requested on a form that
is subject to the Paperwork Reduction
Act unless the form displays a valid
OMB control number. Books or
records relating to a form or its
instructions must be retained as long
as their contents may become

Limits for Trucks and Vans
Date Vehicle Was
Placed in Service

Limit

Jan. 1 – Dec. 31, 2007 . . . . . .

$3,260

Jan. 1 – Dec. 31, 2006 . . . . . .

5,200

Jan. 1 – Dec. 31, 2005 . . . . . .

3,150

Jan. 1 – Dec. 31, 2004 . . . . . .

1,875

Jan. 1 – Dec. 31, 2003 . . . . . .

1,975

Jan. 1, 1995 – Dec. 31, 2002

1,775

-8-

material in the administration of any
Internal Revenue law. Generally, tax
returns and return information are
confidential, as required by section
6103.
The average time and expenses
required to complete and file this form
will vary depending on individual
circumstances. For the estimated
averages, see the instructions for
your income tax return.
If you have suggestions for making
this form simpler, we would be happy
to hear from you. See the instructions
for your income tax return.