Deducting Business Vehicle Purchases on Your 2018 Tax Return

Many homeowners have made the effort to “go green” in recent years, with residential solar power quickly growing in popularity and more energy-efficient home systems becoming available. While the upfront cost of these upgrades can be quite steep, most find that the energy cost savings and the tax deductions for them help to balance out the investment. Recent changes to tax law have decreased the amount that you can deduct for these upgrades, however, and the deduction will continue to decrease until it’s no longer available. But how much can you deduct right now, and what kinds of upgrades qualify? Keep reading to find out.

Renewable Energy Equipment

The first category of energy efficiency that qualifies for a deduction is any kind of equipment that provides your home with a renewable energy source. This includes geothermal heat pumps, small wind turbines, and (most commonly) solar energy systems. Based on current tax law, you can deduct the following percentage of the overall cost for your renewable energy system, depending on when the system was put into service:

• 30% for equipment put into service by 12/31/2019As 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 LimitsOn 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 VehiclesAs 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:
  • Tractors
  • Other farm equipment
  • Tow trucks
  • Semi-trucks and trailers
  • Construction vehicles
  Applicable Purchase DatesThe 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
• 26% for equipment put into service between 1/1/2020 and 12/31/2020
• 22% for equipment put into service between 1/1/2021 and 12/31/2021

These deductions are available for upgrades to a current residence and new-construction homes alike. Your principal and secondary residences both qualify, but rental properties are not eligible for this deduction.

Energy Efficiency Improvements

The second category of upgrades that can provide you with a tax break involves equipment and improvements that increase the energy efficiency of your home, but don’t generate their own energy source. This can include all of the following types of equipment for your home:

• Air source heat pumps
• Central air conditioning
• Water heaters
• Gas furnaces
• Main air fan
• Biomass stoves

Each of these types of equipment have specific efficiency requirements that they must meet in order for you to receive the credit on your tax return. The total tax credit for each of these will vary, but is typically about 10% of the equipment’s cost, with a maximum credit of $500.

Other energy efficiency improvements that can earn you a tax credit include higher-quality insulation, more energy-efficient roofing, as well as windows, doors, and skylights that improve your home’s energy efficiency. Again, the typical tax credit is 10% of the equipment’s cost (not including the cost of labor and installation) with a max credit of $500; windows, however, are capped at $200.

Energy Efficiency Deductions for Commercial Buildings

If you own or build commercial properties, there are also tax deductions available for these buildings. You can receive a tax deduction of up to $1.80 per square foot for your commercial property. However, the building must save at least 50% of energy when compared to ASHRAE Standard 90.1-2007. This deduction is only available for those buildings or systems put into service between January 1, 2018, and December 31, 2020.

If only one of your building’s three main systems (the building envelope, lighting, and heating and cooling system) is energy efficient, you could claim a partial deduction of up to $0.60 per square foot for your building. Energy efficiency deductions for commercial properties can be even more complicated than deductions and credits for residential buildings, so you should work with a professional tax preparer who is experienced with these deductions to ensure you’re claiming them correctly.

Claim Your Tax Credit and Deductions Soon

If you’ve been considering renewable energy equipment or other energy efficiency improvements to your home, but you’ve been putting it off because of the cost, now is the time to take action. As we mentioned, energy efficiency tax credits are on their way out the door. This year is the final year to receive a tax deduction for your renewable energy systems as well as your energy-efficient home upgrades; the tax breaks will expire at the end of 2021 if Congress doesn’t renew them.

If you would like to learn more about what kinds of home upgrades will qualify for a tax break and how much of a credit or deduction you can expect, please reach out to one of our experienced tax professionals for a consultation. We can help you to determine which upgrades will give you the biggest tax break so that you can keep these numbers in mind when deciding what kinds of changes to make to your home. Give us a call today and schedule an appointment with one of our CPAs.