08 Jun Deducting Vehicles Purchased for Business Use in 2018
No matter what type of business you run, odds are you use a vehicle to get some of that work done. Whether you drive a passenger vehicle every day to meet with clients and suppliers, or you have a tractor to help with farm work, these vehicles are a necessary business expense, and are therefore deductible on your business’s tax return. But the specifications and limitations for vehicle deductions have changed for 2018 and future tax years. So here’s what you need to know about deducting the cost of any business vehicle purchased after December 31, 2017.
Changes to Limits
In the past, the limits for the amount you could deduct on a vehicle purchase differed depending the type of vehicle you bought—passenger vehicle, or a truck or SUV. However, the Tax Cuts and Jobs Act changed this so that most vehicles (with a few exceptions we’ll discuss later) now have the same limits applied to them. For 2018, depreciation and expensing deductions for passenger cars, light-duty trucks, and vans are limited to:
- $10,000 in the 1st taxable year
- $16,000 in the 2nd taxable year
- $9,600 in the 3rd taxable year
- $5,760 in each succeeding taxable year until the vehicle has been fully depreciated.
You might notice that this is a significant increase on the limits previously placed on passenger vehicles. These limits have also been expanded to include used vehicles, when the deduction previously only applied to new vehicle purchases. Additionally, the Tax Cuts and Jobs Act (TCJA) retained the previous tax law’s $8,000 bonus depreciation on passenger vehicles. So, this makes the first-year deduction limit $18,000 for passenger autos.
It’s important to note that, if you purchase a luxury passenger vehicle with a large price tag, it can take many years to fully depreciate the value of the vehicle for your business. We recommend discussing the specifics of these deductions and limits with your Provo tax planner.
Bonus Depreciation on Larger Vehicles
The new limits implemented by the TCJA do not apply to certain types of larger vehicles purchased for business purposes. Automobiles with a gross vehicle weight (GVW) of more than 6,000 lbs are not subject to depreciation limits, and you can claim 100% of the vehicle’s value for your deduction.
If your vehicle is under the 6,000 lbs limit, it my still qualify for a 100% deduction if it meets certain requirements. To qualify under this category, the vehicle must meet at least one of the following exceptions:
- Designed to seat more than 9 people behind the driver’s seat
- Includes cargo area 6 feet or more in length, with an open area (or designed for use as an open area, but enclosed with a cap) and is not readily accessible from passenger compartment
- Has an integral enclosure that fully encloses driver compartment and load-carrying device, has no seating behind the driver, and no body section protruding more than 30 inches ahead of the leading edge of the windshield.
For a vehicle meeting these requirements, you can choose to claim up to 100% of the vehicle’s value as a deduction, regardless of the GVW, if purchased and placed into service after September 27, 2017 and before January 1, 2023.
Deducting a vehicle’s purchase as a business expense can be quite complicated, and you want to ensure that you are getting the best deduction possible. So if you have any questions about this process or need further assistance, contact The Accounting Guys to speak to an experienced Provo tax planner. We can help you to plan for next year’s tax return and give you the best return possible.