When determining your net worth, creating a list of your assets and liabilities is one of the first steps to calculate where you stand. Property like real estate, bank accounts, and investments are immediately recognizable as assets with monetary value. However, your automobile may be considered both an asset and a liability.
Key Takeaways
- A car is a depreciating asset that loses value over time but can retain some worth.
- Vehicles immediately begin losing value once the owner takes possession.
- The Kelley Blue Book provides trade-in and private party values for your vehicle.
Understanding an Asset
An asset is something that holds monetary value now or in the future. Common personal assets include certificates of deposit (CDs), real estate, jewelry, and investments like life insurance policies and stocks.
When a company’s assets are on a balance sheet, they include current and fixed assets. Current assets are commonly converted to cash within the fiscal year, such as accounts receivable, cash and cash equivalents, and sellable goods or materials. Conversely, fixed assets are tangible items like machinery and buildings or intangibles like patents and licenses.
How Is a Car an Asset?
A car is a depreciating asset that loses value over time but retains some worth. Because you can convert a vehicle to cash, it can be defined as an asset. Unlike real estate, savings accounts, and other assets that increase in value, automobiles are vulnerable to a range of depreciating factors that can cause values to plummet, such as:
- Odometer miles
- Wear and tear
- Accidents and dents
The average yearly cost of ownership in 2023 to maintain and use a car for 15,000 miles annually is over $10,000. This includes maintenance, insurance costs, and fuel.
Some cars that retain their value or appreciate over time include 1950s American classics and British or German classics like the Aston Martin or Bentley.
Value vs. Depreciation
Depreciation affects your car's overall worth, and knowing the value of your vehicle when planning to sell it is essential. A new vehicle loses 20% of its original value in the first year. A $60,000 car is only worth $48,000 a year later.
If you use your car for business, you may be able to claim your depreciation loss, up to $19,200 if you qualify, when you file your taxes.
The website for the Kelley Blue Book (KBB) uses your vehicle’s year, make, model, amount of mileage, and vehicle identification number (VIN), to provide the trade-in and private party values. All vehicles naturally depreciate over time and with regular use, but some models retain value. According to KBB, Toyota is the value brand that tends to hold its resale value and identified the Toyota Tundra as the model that best retained its value in 2023.
Should Your Net Worth Calculation Include Your Car?
When calculating your net worth, subtract your liabilities from your assets. Since your car is considered a depreciating asset, it should be included in the calculation using its current market value.
Is a Financed Car Still an Asset?
Yes and no. The vehicle is an asset with a cash value if you need to sell it. However, the car loan is a liability, and the loan should be deducted from the car's value.
Can a Car Ever Be Considered an Investment?
Rare and exotic cars may increase in value as the number of road-worthy models decreases.
The Bottom Line
Nearly every vehicle on the road will depreciate over time. Miles driven add to its wear and tear, accidents and dings cause values to decrease. Car owners should continually research their vehicle's value and keep a diligent maintenance schedule to optimize its worth in cash.
FAQs
A car is a depreciating asset that loses value over time but retains some worth. Because you can convert a vehicle to cash, it can be defined as an asset.
Would a car be a current asset? ›
Typically, anything you expect to be converted into cash within a year is a “current” asset. Fixed assets are items that can be turned into cash but are expected to be held over a year. Fixed assets are your home, car, or any household equipment that represents monetary value but isn't expected to just be sold.
Does a car count as net worth? ›
Your net worth is what you own minus what you owe. It's the total value of all your assets—including your house, cars, investments and cash—minus your liabilities (things like credit card debt, student loans, and what you still owe on your mortgage).
Is a car a good asset to buy? ›
This is because cars rapidly depreciate and in accounting, we reduce their value each year. This is unlike other assets like land or shares which tend to appreciate with time. So cars are not investments. Yes, they are necessities to move you around but they should not be considered good investments.
Why is a car not an asset? ›
An asset is an investment that generates an income and appreciates in value over time. A brand new luxury car you purchase at a car dealership is not an asset and here is why. It depreciates and loses real value over time from odometer miles, wear and tear and accidents.
How do you show proof of assets? ›
Here's how you can demonstrate proof of assets to a mortgage lender:
- Bank Statements. ...
- Investment Account Statements. ...
- Retirement Account Statements. ...
- Real Estate Documents. ...
- Vehicle Valuations. ...
- Business Ownership Documents. ...
- Other Relevant Documentation.
Answer and Explanation:
A car is a depreciating asset. This is because the car's value has limited effective life and thus is expected to reduce with time. This means that if the car is to be sold in the future, it will be sold at a lower cost than its buying price.
Is a car or house an asset? ›
Your example, any car you own has a value and that value should be included in your overall net worth. Likewise, if you own real estate or a business, these are also assets that should be included in your overall net worth.
What is considered an asset? ›
Assets are things you own that have value. Assets can include things like property, cash, investments, jewelry, art and collectibles. Liabilities are things that are owed, like debts. Liabilities can include things like student loans, auto loans, mortgages and credit card debt.
How do you turn your car into an asset? ›
If your car is collecting dust in the garage, renting it out can be a great way to make money back on an asset that isn't being used. Services include Turo, Getaround and HyreCar. However, if you have a current auto loan, your lender may not allow you to rent your car out.
While your loan is a liability, as you pay it down over time, that part gets smaller. Once you pay off your loan, you'll own your car free and clear, and you can count it as an asset.
How much income to buy a 100k car? ›
In that case, you need to consider groceries, utilities, and other household expenses. To afford a $100,000 car, it's probable you need to make $300,000 a year conservatively after taxes. For this example, we use our car payment calculator and approach it using the price of the car of $100,000.
Do I really need a car? ›
Functioning without a vehicle isn't always feasible. But if you live in an area where you can get around via public transportation or on foot, and you don't really need a car to work or shop, then it could pay to unload your car and enjoy the savings.
How much should I spend on a car if I make $200,000? ›
How much car can I afford based on salary? According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%.
What's the biggest wealth building tool? ›
“Your income is your most important wealth-building tool. And when your money is tied up in monthly debt payments, you're working hard to make everyone else rich.”
What counts as an asset? ›
Assets are things you own that have value. Assets can include things like property, cash, investments, jewelry, art and collectibles. Liabilities are things that are owed, like debts. Liabilities can include things like student loans, auto loans, mortgages and credit card debt.
What asset category is a vehicle? ›
Answer and Explanation:
Although there are different types of vehicles, they all fall in the category of Fixed Assets. In general, assets that are expected to last more than a year are fixed assets.
