Eligible commercial vehicle purchases may be eligible for Section 179 depreciation, 50% first-year bonus depreciation, and periodic depreciation deductions. Taken together, these deductions can be substantial. But favorable tax rules may not last. If you’re considering buying an SUV or other heavy commercial vehicle, it might make sense to act before the end of the year, in case the rules change after Election Day. The Protecting Americans from Tax Increases (PATH) Act of 2015 locked in favorable depreciation rules for commercial use of “heavy” SUVs, pickups and vans. Using these rules, you can write off your entire business – a portion of the cost of using a heavy vehicle in the first year. Here’s how it works.
Heavy vehicle depreciation tax relief
The commercial portion of your heavy vehicle cost is first reduced through the Section 179 Deduction Vehicle List. Sec if the vehicle is classified as an SUV under tax rules. 179 The deduction is limited to $25,000. Heavy non-SUVs—such as long-bed pickups and vans—are not affected by the $25,000 limit. For these vehicles, you can generally write off the entire business use portion of the cost in the first year in accordance with the SEC’s regulations. Importantly, a cargo pickup with an interior length of at least 6 feet is not an SUV. (However, pickups with shorter beds are considered SUVs.)
Second, you can claim an additional depreciation deduction of 50% for the first year, which only applies to new (unused) vehicles. Finally, the business-use portion of the remaining cost (if any) is depreciated according to the “regular” depreciation rules. In the first year, the regular depreciation rate for the vehicle is usually 20%. The generous first-year depreciation deduction rules explained in this article only apply to vehicles with more than 50% commercial use.
Case in point
Here are a few examples of how these favorable tax deductions add up. First, let’s say you buy a new $50,000 heavy-duty SUV before the end of the year. It is 100% used in your sole proprietorship. Because the vehicle is an SUV, Sec. 179 The deduction is limited to $25,000. Therefore, the first year depreciation will be as high as $40,000, including the following elements:
- $25,000 sec. 179 deduction,
- $12,500 in additional depreciation (half of the remaining purchase price after deduction of Section 179), and $2,500 in periodic depreciation (20% of the remaining purchase price after the above two deductions).
- The $40,000 deduction in the first year will reduce your federal income tax bill and self-employment tax bill. You may also qualify for generous state income tax deductions in some (but not all) states. Or, let’s say you bought a new $50,000 sedan and used 100% of it for commercial use. With this smaller vehicle, your first-year depreciation write-off is only $11,160. For a new light truck or light van valued at $50,000, your first year write-off is only $11,560.
What if you buy a used car instead of a new one? You can still claim $25,000 in seconds. 179 are deducted, but you are not eligible for bonus depreciation. Normal depreciation is $5,000 (20% of the remaining $25,000 purchase price after Section 179). In this case, your total first-year depreciation deduction would be $30,000.
Now, let’s say you bought a heavy-duty pickup with a long bed for $50,000. This car is exempt from the $25,000 limit. 179 deduction limit for federal income tax purposes, you can generally deduct the full cost of this vehicle on your tax return for this year under Sec. 2. 179. In addition, pickups can be new or used. By comparison, if you buy a $50,000 used car, your first-year depreciation write-off is only $3,160. For a $50,000 used light truck or pickup, your first-year depreciation write-off is only $3,560.
Example of a “heavy” vehicle
Second. 179 Deduction and bonus depreciation transactions are only available for the purchase (non-lease) of an SUV, pickup or van with a manufacturer gross vehicle weight rating (GVWR) of more than 6,000 lbs.
- Buick enclave,
- Cadillac Escalade,
- Chevrolet Tahoe,
- Dodge Durango, and
- Jeep Grand Cherokee.
Most full-size pickups — including the Nissan Titan, Toyota Tundra, and Dodge Ram — also qualify. A vehicle’s GVWR can usually be found on a sticker on the inside edge of the driver’s side door. The IRS has confirmed that heavy-duty SUVs are eligible for the above depreciation tax deductions, whether they’re built on a truck chassis or a car chassis. Therefore, heavy-duty crossovers also qualify for this favorable tax treatment.
There are limits to the depreciation rules that favor heavy Vehicles Over 6000 Pounds. Here are some common warnings you should heed:
- The 179 deductions cannot exceed the taxpayer’s total net business taxable income before the SEC. 179 logoffs. If you run your business as a sole proprietorship or single-member LLC, it is considered a sole proprietorship for tax purposes, and you can count any wages you earn as an employee as additional business income. If you’re married and filing a joint return, you can also calculate your spouse’s employment income and any self-employment income he or she may have earned.