This time of year, we get a lot of questions about tax deductions for vehicle purchases. Can I write off my new car? The full amount? Does it make sense to purchase a vehicle now before the end of the year?
Like any areas of tax law, vehicle write offs can unfortunately be a little complex. Here, we'll provide a quick run through to explain when new vehicles qualify for deductions and how much you can expect to expense.
When I can deduct my new vehicle as a business expense?
You can deduct your vehicle (or part of your vehicle) as a business expense if it’s used mostly for your business. Seems pretty simple, but exactly how much you can write off varies depending on the type of vehicle and its use. So let’s dig a little deeper.
How much I can deduct?
If you purchase a business vehicle that by its nature is not suited for personal travel (ambulance, hearse, cargo vehicles without seats, taxis, vehicles with seats for over nine passengers), you can generally write off the whole thing. This doesn’t mean you can purchase a hearse, claim the full expense, and then use it as your personal vehicle. Personal use will still trump the kind of vehicle you purchase.
If you have a passenger vehicle (car, truck, van) and use it for business purposes more than 50% of the time, you’re able to claim a portion of your expenses the year it was purchased and made available for use.
- Cars - up to $3,160 for regular depreciation
- Trucks and vans - up to $3,460 for regular depreciation
Under Section 179 of the tax law, there’s a specific depreciation break for certain passenger vehicles with a gross weight between 6,000 and 14,000 lbs. If these vehicles are financed and meet proper conditions, you can qualify for expensing up to $25,000 the first year. Regular depreciation can also be taken depending on the cost of the vehicle.
Here’s a list of vehicles that qualify under Section 179, although this list is not exhaustive:
- Audi: Q7 TDI
- BMW: X5, X6
- Buick: Enclave
- Cadillac: Escalade
- Chevy: Silverado, Suburban, Tahoe, and Traverse
- Dodge: Durango and Ram pickup
- Ford: Expedition, Explorer, all F-Series pickups, Transit vans
- GMC: Acadia, Yukon, all Sierra pickups
- Infiniti: QX56
- Jeep: Grand Cherokee
- Land Rover: LR4, HSE, Sport
- Lincoln: MKT, Navigator
- Mercedes: GL 350 diesel, ML350, R350
- Nissan: Armada NV, Pathfinder 4-wheel drive, Titan
- VW: Touareg hybrid
In past years, there’s been an opportunity for additional deductions through bonus depreciation. Bonus depreciation for 2015 is not yet available, but this could change before the end of the year.
Here’s a look at last year’s numbers, which included bonus depreciation:
- Cars - additional $8,000 bonus depreciation (for a max of $11,160 in deductions)
- Trucks and vans not qualifying for section 179 - additional $8,000 bonus depreciation (for a max of $11,460 in deductions)
- Vehicles qualifying for Section 179 - additional bonus deprecation for up to half of the remaining cost of the car (up to $8,000), plus regular depreciation
For example: The first year depreciation for a Nissan Armada costing $40,000 could be like this:
- $25,000 per Section 179
- Plus bonus deprecation of half of the remaining amount, not to exceed $8,000.
- $40,000 less $25,000 = $15,000 remaining
- Half of $15,000 = $7,500 bonus depreciation
- $25,000 plus $7,500 = $32,500 total
- Plus $1,500 for regular depreciation.
- Totaling $34,000
(Please remember that as of this writing bonus deprecation is not available for 2015.)
If your vehicle is used for business 100% of the time, you can likely claim maximum deduction figures. But if only 75% of its use is for business, your deduction will decrease by the appropriate percentage.
For example, if you purchased a new car in 2014 and used it for business 75% of the time, you were were able to take $2,370 in standard deductions regular deprecation (3,160 x 75%) and $6,000 in bonus depreciation ($8,000 x 75%) for a total of $8,370 in deductions.
These were the basic figures for first-year depreciation on new vehicles in 2014, and, again, the decision on 2015 bonus depreciation will be made within the coming months.
If you have specific questions, talk to a qualified tax professional. There might be nuances to your finances that affect the numbers we’ve crunched here. Our team is available to listen to your questions and help explain your tax situation so it’s easier to understand.