Tax Deductions for Business Vehicle Purchases

Countless factors influence a person’s decision to purchase a particular vehicle. Everything from whether to buy a car, truck, or SUV to smaller factors, such as specific options and color. While tax considerations may not top the list for personal vehicles, certain qualities do influence tax deductions for business vehicles.

Car Deductions 101

Generally, when a vehicle is purchased, its cost is not allowed to be deducted in full during the year of purchase. Instead, the cost must be deducted, or “depreciated,” over a few years (generally five). However, there are several tax strategies for business vehicles that business owners might use to accelerate depreciation.

Some considerations include Section 179, bonus depreciation, Gross Vehicle Weight Rating (GVWR), and others.

Bonus Depreciation vs. Section 179

Section 179 and bonus depreciation are separate deductions that can be taken alone or together to help reduce a business’s tax liability.

Section 179

Section 179 deduction allows qualified taxpayers to deduct part or all of the cost of certain vehicles in the first year of business use. It is most common for Section 179 to be applied first. But if a company has no taxable profit or the car is over the cost limit, bonus depreciation may be the best option.

Bonus Depreciation

Bonus depreciation allows for an additional deduction of up to 100% of the cost of the vehicle in the first year if it is not fully deducted under Section 179. The 2017 Tax Cuts and Jobs Act increased the percentage of what could be deducted in the first year from 50% to 100%. In recent legislation, bonus depreciation began to be phased out after 2022.

For more information on the phase–out, read Bonus Depreciation: 5 Key Points.

Key Factors to Think About When Selecting a Business Vehicle

Gross Vehicle Weight Rating

A vehicle’s weight, surprisingly, is an often-overlooked factor while evaluating a purchase. Business use SUVs, trucks, or vans weighing over 6,000 and under 14,000 pounds can be fully deducted in the first year.

Vans and Trucks

If purchasing a pickup truck, consider one with a bed at least six feet long. If purchasing a van, consider one that can seat more than nine people behind the driver’s seat. Maximize your first-year deduction with either of these factors. Sometimes, you can fully deduct the cost of the vehicle in the first year.

New vs. Used

Before the passage of the Tax Cuts and Jobs Act, there were advantages to purchasing a new vehicle instead of a used vehicle. But under the new tax law, the bonus depreciation provisions were amended to allow a deduction for used cars as well as new ones. Given this change, there is no advantage from a tax standpoint to purchasing a new vehicle versus a used vehicle.

Taking Advantage of Tax Deductions for Business Vehicle Purchases

When selecting a business vehicle, it’s important to consider all the tax implications. Get advice on deducting your business vehicle cost. Our advisors can help you find the best option for your company. Contact us today for more information about tax deductions and how they could benefit your business.