Automobiles are a necessary business expense for countless types of businesses. From farms to retail companies, vehicles are often purchased solely for the purpose of getting the job done. And while we’ve discussed deducting annual vehicle expenses, deducting the actual purchase of a vehicle is another matter altogether. With the implementation of the Tax Cuts and Jobs Act (TCJA), the limitations and guidelines for deducting these purchases have changed. So if you purchased a vehicle and put it into service this year, here’s what you need to know about claiming that expense on your tax return next year.
Deduction Limits on Vehicle Purchases
Previously, the limitations on the amount you could deduct for a vehicle purchase varied based on whether you bought a passenger car, or a truck, van, or SUV. The TCJA simplified this aspect of claiming an automobile purchase, and most type of vehicles now have the same limitations. (There are a few exceptions, which we’ll discuss in the next section). Here’s how much you can deduct each year after the purchase of a business-use vehicle:
- 1st taxable year: $10,000
- 2nd taxable year: $16,000
- 3rd taxable year: $9,600
- Each succeeding taxable year: $5,760 until the vehicle has been fully depreciated
This is a significant increase on the previous limits for passenger autos, and the limits now apply to used vehicle purchases, when they previously only applied to new vehicles. Additionally, if you purchased a passenger vehicle, you can claim $8,000 of bonus depreciation, which means the first-year deduction limit is $18,000 for any passenger autos you purchase for business use.
If you purchase a high-end, luxury passenger car, it’s important to note that it can take many years to fully depreciate the value of the vehicle. If you would like to get a better understanding of this and the implications for your business taxes, please contact us to learn more about our Provo tax planning services.
100% Deduction on Larger Vehicles
The deduction limits outlined above apply to most “standard” vehicles. However, many businesses require larger or more specialized vehicles to perform the tasks necessary for their industry. So, automobiles with a gross vehicle weight (GVW) over 6,000 lbs are not limited to the deduction amounts given. Rather, you can claim 100% of the purchase price as a deduction on your business’s taxes.
Certain vehicles weighing under 6,000 lbs GVW may qualify for a 100% deduction as well. These vehicles must meet at least one of the following requirements to qualify for this deduction:
- Seats more than 9 people behind the driver
- Has a cargo area over 6 feet long, with a designed open area (may be enclosed by a cap) that is not readily accessible from the passenger area
- Includes an integral enclosure, fully enclosing driver compartment and load-carrying area, does not have any seating behind the driver, and has no body section more than 30 inches in front of the leading edge of the windshield
Vehicles meeting any of these specifications qualify for a deduction up to 100% of the original purchase price, regardless of weight. Note that all of these requirements and limitations apply to vehicles purchased and put into service after September 27, 2017 and before January 1, 2023.
If you’re uncertain of how much you can deduct for your business vehicle purchase, and you need assistance, contact Biesinger & Kofford CPAs to learn more about our Provo tax planning services. We’ll help you to determine which deductions you qualify for, and get you the best return possible for your business.