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These Three Questions Share the Essential Depreciation Facts Owners Should Know

Car ownership entails understanding one of the confounding factors about it: depreciation. What is it, and how does it affect the value of the vehicle? Can maintaining a vehicle stop the process? Find out the answers in this list of FAQs:

1. Can Vehicle Maintenance Stop Depreciation?

Depreciation is the quantification of the wear and tear of an asset, such as a vehicle. It happens regardless of age, make, and model. Some factors, though, may eventually slow it down and even improve the value of the car.

Take, Subaru, for example. Experts suggest that the average depreciation for the first three years for this vehicle is about 30%. It’s a significant percentage.

With routine Subaru maintenance, though, owners can reduce this percentage within the next two years. If they decide to sell it, it will still have an excellent market or trade-in value.

2. Do All Vehicles Depreciate the Same Way?

Based on the answer to the first question, it’s clear that not all vehicles depreciate in the same manner. Some of them do so fast, while others are slow.

It’s because many factors can affect the depreciation of the vehicle:

  • Mileage
  • Age of the vehicle
  • Make and model
  • Maintenance

Savings.com.au has compiled an extensive list of the different depreciation rates of vehicles. At least two general types or vehicles experience fast depreciation: luxury and utes.

Luxury vehicles, such as BMW and Mercedes-Benz, depreciate quickly because of the high cost of ownership. They can also lose their market value fast. The owners pay a steep price to get it, but it’s rare for used-car buyers to spend even close to the original amount or even more. It usually happens only when the vehicle is limited edition or unique.

Utes, meanwhile, are sturdy vehicles. It explains why they still depreciate slower than luxury ones. However, since they are reliable, owners are more likely to drive them in tough roads and adverse weather conditions. They may also use the vehicle for their business. In other words, they may experience wear and tear fast and use a lot of mileage.

3. What’s the Impact of Depreciation?

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Owners won’t see depreciation itself on the vehicle. They can feel it once they’re ready to sell or trade their SUV or car. Dealers will use it as one of the factors to determine the market value and, ultimately, the price of the vehicle.

Depreciation also matters in accounting and taxation. It is useful for business owners who use their vehicles for their operations.

In Australia, the Taxation Office allows individuals to write off work-related vehicle expenses. Even better, you can also do the same thing for repairs and maintenance. It gives car owners no excuse to avoid spending on vehicle care.

But there’s a caveat. According to the law, the owners can write off only the expense associated with the business operations. For example, if they use the vehicle 40% of the time and depreciation expense is $500, then they can only account for $200.

Taxation rules can also differ depending on the value of the depreciable assets and the size of the business. The duration in which one can claim depreciation also varies according to the asset. For this reason, business owners may consider working with a tax professional to avoid confusion.

Depreciation is a reminder that all assets have a useful life—they won’t last forever. But owners can take steps to squeeze as much value as they can or even use it to their advantage.