Deducting Business Vehicle Purchases on Your 2018 Tax Return
As 2018 draws to a close, there are many things that you need to examine, gather, and consider to prepare for filing this year’s tax return. And if you’re a business owner, that list of things you need to consider gets a lot longer. One important tax consideration for business owners is claiming the purchase of a vehicle as a business expense. If you’re not aware of it, many aspects of this deduction changed for the 2018 tax year, so here are a few things you need to know about claiming this deduction on your next return.
New Deduction Limits
On previous returns, deduction limits were different based on whether you purchased a passenger vehicle, or a van, truck, or SUV. The Tax Cuts and Jobs Act of 2018 simplified this somewhat by giving the same limitations to all vehicle types. (We’ll discuss the exceptions to these limitations in a later section.) Generally speaking, these are the deduction limits for each year after you purchase a vehicle for business use:
- First taxable year: $10,000
- Second taxable year: $16,000
- Third taxable year: $9,600
- Each taxable year thereafter: $5,760 (until the vehicle’s full value has been deducted)
If you’ve deducted a business vehicle on past tax returns, you’ll notice that these deduction limits are significantly higher for passenger vehicles. Additionally, these limits now apply to used auto purchases, when they used to only be applicable to new cars. You can also claim up to $8,000 of bonus depreciation if you purchase a passenger vehicle for your business, giving you a maximum deduction of $18,000 for the first taxable year that your vehicle is in use for business purposes.
Note that luxury vehicles will take many years to be fully deducted on your business tax return, and this can have certain implications for your business’s taxes. If you have questions regarding how your business auto purchase can be deducted on your tax return, just give us a call. We’d be happy to help.
100% Deduction for Large Vehicles
As mentioned above, there are certain exceptions to the new deduction limits. The previously mentioned amounts apply to most “standard” vehicles; however, certain types of businesses require specialized vehicles for their industry. For vehicles with a gross vehicle weight over 6,000 pounds, the deduction limitations outlined above do not apply. Instead, you can claim the entire cost of the vehicle’s purchase as a deduction on your business’s return.
Certain other vehicles that have a gross vehicle weight under 6,000 pounds may also qualify for a 100% deduction. To be eligible for this, the vehicle must meet at least one of the following requirements:
- Seats 10 or more people behind the driver.
- Has a cargo space with a designed open area (though the area may be enclosed with a cap) that is not easily reached from the passenger area; cargo area must also be at least 6 feet long.
- Has an integral enclosure that fully encloses the driver and load-carrying areas, has no seating behind the driver, and has no body section more than 30 inches in front of the windshield.
If the vehicle you purchased for your business meets any of the above-mentioned specifications (or if it has a gross vehicle weight over 6,000 pounds), you can deduct up to 100% of the purchase price on your tax return. Typically, this deduction can apply to the following types of vehicles, though it is not limited to this list:
- Other farm equipment
- Tow trucks
- Semi-trucks and trailers
- Construction vehicles
Applicable Purchase Dates
The limitations and requirements outlined above apply to any vehicle purchased and put into service for business purposes between September 27, 2017 and January 1, 2023. Note that your vehicle must be both purchased and put into service between these dates, so you cannot deduct an automobile that you have not put into service for your business.
If you’d like to learn more about deducting your business’s fleet of vehicles, and how much you might be able to claim on your business tax return, contact us. We’ll help you figure out which deductions your business can claim, and help you to get the best return possible for your company.