Don’t Miss These Increased Deductions for Business Vehicles

Depreciation deductions for business vehicles have historically been limited by the “luxury auto depreciation” rules. For vehicles placed in service in 2018, TCJA significantly increases the annual depreciation deduction limits:

                                                           New Law          Prior Law

            1st Year                                 $10,000               $3,160

            2nd Year                                  16,000                 5,100

            3rd Year                                     9,600                 3,050

            4th Year and Thereafter            5,760                 1,875

These limits will be adjusted annually for inflation. For vehicles that are eligible for bonus depreciation, the first year limit is increased by $8,000 to $18,000. TCJA also expanded eligibility for bonus depreciation to include used as well as new vehicles.

And the news is even better for vehicles classified as heavy SUVs, pickups and vans. As under prior law, the annual depreciation limits above don’t apply to SUVs, pickups and vans with a Gross Vehicle Weight Rating (GVWR) over 6,000 pounds. (You can find this information on the manufacturer’s label on the inside edge of the driver’s side door.) Another welcome provision of TCJA increased the first-year bonus depreciation percentage from 50% to 100%. Therefore, the entire cost of the eligible heavy SUV, pickup or van can be deducted in the first year!

TCJA also increased the Section 179 deduction limitation to $1 million in 2018. This is another opportunity for eligible owners to deduct up to 100% of the cost of heavy SUVs, pickups and vans in the first year. Heavy SUVs will still be subject to a $25,000 Section 179 limitation unless certain exceptions apply.

Please note that the vehicle must be used over 50% for business to take advantage of these increased deduction limits, and must be used 100% for business in order to deduct the full amounts. Special rules apply in determining the business use percentage of a vehicle used by a stockholder of a corporation. Contemporaneous vehicle usage logs should be maintained to substantiate the business mileage and prevent the disallowance of deductions.

If you have questions about how you and your business can take advantage of the new vehicle deduction limits, please contact us.

LEGAL DISCLAIMER: The information presented on this blog should not be construed as legal, tax, accounting or any other professional advice or service. You should consult with a professional advisor familiar with your particular factual situation for advice concerning specific tax or other matters before making any decision.