To encourage businesses to buy equipment as well as cars and trucks Congress passed Internal Revenue Code (IRC) Section 179. For passenger vehicles, trucks, and vans with a gross weight of less than 6,000 pounds that are used more than 50% in a qualified business use, the total deduction for depreciation including both the Section 179 expense deduction as well as 50% Bonus Depreciation is limited to $11,160 for cars and $11,560 for trucks and vans. Keep in mind you only get bonus depreciation on new vehicle purchases.
For example if the car cost $30,000 and is used 100% for business, the business would get an IRC Section 179 deduction of $11,160 and a regular depreciation deduction of $3,768 (20% of the $18,840.00 difference). Therefore, you can deduct up to $14,928 if you buy a new car and use it 100% for business. If the vehicle is used less than 100% for business both the Section 179 deduction and regular depreciation deduction are reduced proportionately based on the actual business use percentage.
SUV’s, trucks and vans with a gross vehicle weight rating above 6,000 pounds but no more than 14,000 pounds qualify for expensing up to $25,000 if the vehicle is financed and placed in service prior to December 31. In addition, the business can deduct 50% of the remaining cost over $25,000 as bonus depreciation, but that only applies to new vehicle purchases.
For example, a new heavy SUV used 100% for business that costs $52,000 and qualifies for Section 179 could be written-off in 2017 as follows:
- First Year Section 179 Deduction: $ 25,000
- Bonus Depreciation (50% of remaining balance): $13,500
- Regular Depreciation (20% of remaining balance): $2,700
- Total First-Year Write-Off: $ 41,200
Keep in mind that businesses that experience net operating losses cannot claim an IRC Section 179 deduction that would create or increase an overall business tax loss. However they may take the 50% bonus depreciation deduction, and carry the remaining net operating loss forward where it can be used in future years.
Note that under the Protecting Americans from Tax Hikes Act of 2015, bonus depreciation is scheduled to be reduced to 40% in 2018 and 30% in 2019 before it expires on December 31, 2019.
Here’s a list of 2016 model cars with a gross weight over 6,000 lbs. Usually a vehicle will have its weight listed on the side door. If you’re unsure, just ask the dealer.
- Audi Q7 3.0L TDI
- BMW X5 XDRIVE35I and X6 XDRIVE35I
- BMW Buick ENCLAVE
- Cadillac ESCALADE AWD
- Chevrolet Truck AVALANCHE 4WD
- Chevrolet Truck SILVERADO
- Chevrolet Truck SUBURBAN
- Chevrolet Truck TAHOE 4WD, TRAVERSE 4WD
- Dodge Truck DURANGO 4WD
- Ford Truck EXPEDITION 4WD, EXPLORER 4WD
- Ford Truck F-150 4WD and FLEX AWD
- GMC ACADIA 4WD, SIERRA and YUKON 4WD and XL
- Infiniti QX56 4WD
- Jeep GRAND CHEROKEE
- Land Rover RANGE ROVER 4WD and SPT and LR4
- Lexus GX460 and LX570
- Lincoln MKT AWD
- Mercedes Benz G550 and GL500
- Nissan ARMADA 4WD and NV 1500 S V6 and NVP 3500 S V6
- Nissan TITAN 2WD S
- Porsche CAYENNE
- Toyota 4RUNNER 4WD, LANDCRUISER, SEQUOIA 4WD LTD and TUNDRA 4WD
- Volkswagen TOUAREG HYBRID
If you have any questions or need help with your taxes or business deductions call Gregory J. Spadea at 610-521-0604. The Law Offices of Spadea & Associates, LLC is located in Ridley Park and prepares business and individual tax returns year round.
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