Updated February 28, 2019
Due to recent changes in the tax law, many business people who purchase heavy SUVs and similar vehicles for their business can now take enormous depreciation deductions. In many cases, they are able to deduct the full cost of an expensive heavy vehicle in a single year. This development is something that has never been possible before.
Limited depreciation deductions for passenger vehicles
There are annual limits on how much you can deduct through depreciation if your car is a passenger automobile. A passenger automobile is:
- Any four-wheeled vehicle
- Made primarily for use on public streets and highways, and
- Has an unloaded gross weight of 6,000 pounds or less
In the case of vans and trucks, the limit of 6,000 pounds is based on gross loaded vehicle weight.
If your car is a passenger automobile, you can depreciate no more than $10,000 of the cost the first year. This is so no matter how much you paid for the car. You can also deduct another $8,000 the first year through bonus depreciation (see below). You may deduct up to $16,000 the 2nd year, $9,600 the third year, and $5,760 every year after that.
No limits on depreciation for heavy vehicles
The annual limits on vehicle depreciation don’t apply to trucks, vans, and SUVs built on a truck chassis that are weight-rated by the manufacturer at more then 6,000 pounds gross loaded vehicle weight. This means that owners of such vehicles can take full advantage of two great tax deductions:
- Bonus depreciation, and
- Section 179
100% bonus depreciation for heavy vehicles
A massive new tax law called the Tax Cuts and Jobs Act (TCJA), went into effect in 2018. Among other things, it greatly expanded bonus depreciation. During 2018 through 2022, you may deduct in a single year up to 100% of the cost of most types of personal property you use for business with bonus depreciation. However, bonus depreciation for passenger vehicles is limited to $8,000.
Because the passenger automobile depreciation limits don’t apply to heavy vehicles, you can take full advantage of bonus depreciation when you purchase one. You can deduct 100% of the cost in one year if you use the vehicle 100% for business.
Heavy vehicle bonus depreciation: Examples
Scenario 1: Arthur purchases in 2018 a $100,000 truck he uses 100% of the time for his hauling business. He may deduct the entire $100,000 cost in 2018 using 100% bonus depreciation.
If you use the vehicle less than 100% for business, you must reduce your deduction accordingly. However, you must use the vehicle at least 51% of time for business to use bonus depreciation at all.
Scenario 2: Bill purchases a 6,500 pound SUV for $50,000 in 2018. He uses the vehicle 60% of the time for his nursery business, thus his depreciable basis is $30,000 (60% x $50,000 = $30,000. He may deduct his entire $30,000 cost in 2018 with 100% bonus depreciation.
Section 179 deduction
Another method of deducting the cost of a heavy vehicle is using Section 179. Section 179 allows business owners to deduct $1 million in personal property they buy for their business each year. However, the Section 179 deduction is limited to $25,000 for trucks and SUVs. For these purposes, an SUV is any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways that has a gross vehicle weight of 6,000 to 14,000 pounds. But with bonus depreciation set at 100% during 2018 through 2022, there would appear to be little reason to use Section 179.
How to qualify for the bonus depreciation deduction
To qualify for bonus depreciation (or Section 179), you must use your vehicles for business more than 50 percent of the time. This is true for the full five-year depreciation period that applies to vehicles.
If your use dips below 50 percent during any of that five-year period, you’ll have to repay your bonus depreciation deduction. That’s why it’s vital to track your business mileage, no matter what method you’re using to take a deduction.
List of heavy vehicles
You’ll find a list of heavy vehicles below. These are vehicles with a loaded weight of over 6,000 pounds.
The table below is not an exhaustive list. You can consult a car manufacturer’s website to see how much a vehicle weighs.
|Audi||Audit Q7 3.0T Premium||6479|
|Land Rover||Range Rover||7033|
|Ram||ProMaster 1500 Cargo||8550|
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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.