What it means
Tax authorities know that some assets blur the line between work and home. A vehicle used for client visits might also be used for weekend trips, so the law treats such items as listed property and asks for evidence of how they are used.
Typical examples include passenger cars, other vehicles used for transport and property used for entertainment or recreation. The key test is the business use percentage, which compares business use with total use.
In general, if business use is more than 50% of the total, the owner can claim accelerated depreciation (larger deductions in the early years) and certain first-year expensing options. If business use falls to 50% or below, the owner must usually fall back to the slower straight-line method, and earlier deductions may even have to be clawed back.
Only the business portion of the asset qualifies for the deduction. An asset used 60% for business and 40% for personal reasons gives a deduction on 60% of its cost.
This is why a mileage log, calendar or similar record is so important, since inspectors will ask for it. The detailed limits, thresholds and categories change over time and differ between countries, so a business should check the current rules or ask a qualified tax adviser.
Other countries have comparable ideas under different names, such as restricting capital allowances (tax relief on asset purchases) for cars with private use. Outside tax, the same words can mean a property advertised for sale, and in the UK a listed building is a protected heritage structure.
Those meanings are unrelated to the tax category described here.
In practice
Real-world examples.
Example
A consultancy buys a $55,000 car for its managing partner. The partner keeps a daily mileage log showing 70% business use, so the firm claims depreciation on $38,500 of the cost. Without the log, the tax inspector could disallow the whole claim.
Example
A bakery owner uses a van for deliveries on weekdays and for family trips at weekends. A review shows that business use is only 45%, so the owner cannot use accelerated depreciation. The deductions are spread evenly over the asset's tax life instead.
Example
A small photography studio buys a camera and a laptop for $6,000. The owner's accountant checks whether the items count as listed property and which records support the business-use claim. The accountant files a note in the tax file showing how each item is used.
Formula
Calculation
Business use % = Business miles / Total miles
Deductible cost = Cost of asset x Business use % x Depreciation rate for the year
A company buys a delivery car for $40,000. During the year it is driven 20,000 miles, of which 12,000 are for business. Business use is 12,000 / 20,000 = 60%, which is above 50%, so accelerated depreciation is allowed on the business share. The business share of the cost is $40,000 x 0.60 = $24,000. If we assume an illustrative first-year depreciation rate of 20%, the deduction is $24,000 x 0.20 = $4,800. Had business use been only 40%, the business share would be $40,000 x 0.40 = $16,000 and the slower straight-line method would apply.Case study
Seen in the real world.
Ridgeway Surveying Ltd is an illustrative, fictional firm of three land surveyors. In its first profitable year the owners each bought a pickup truck for about $48,000 and planned to deduct the full cost straight away.
Their accountant asked for mileage records and found that two of the owners had no log at all. After reconstructing journeys from site diaries and client invoices, the firm showed business use of 85% for one truck, 62% for another and only 41% for the third.
The first two trucks qualified for accelerated depreciation on their business share. The third had to use straight-line depreciation on 41% of its cost. The partners adopted a mileage app the next month and the problem did not return.
Watch out
Common mistakes.
- Deducting the full cost of a vehicle without counting personal use, which is the main reason listed property rules exist.
- Keeping no mileage log and relying on memory, when inspectors expect records made at or near the time.
- Assuming that business use above 50% means the whole asset is deductible, when only the business share counts.
Questions
People also ask.
What happens if business use drops below 50% in a later year?
The owner may have to recalculate earlier deductions and could face recapture, meaning part of the earlier tax benefit is added back to income.
Does the rule apply to a company car as well as a sole trader's car?
It generally applies to both, although the rules for employer-provided vehicles have their own extra conditions.
Is listed property the same as a listed building?
No, a listed building is a protected heritage structure in the UK, while listed property in tax means assets with a risk of private use.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related