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?
Your car is considered a consumer product, and consumer products can depreciate. 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 have the potential to 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.
