Many businesses need to invest in heavy sport utility vehicles (SUVs) to transport equipment and provide timely services. Fortunately, they may be able to claim valuable tax deductions for the purchases. This article provides an overview of the tax rules and benefits for SUV purchases.
Bonus depreciation
Under current law, 100% first-year bonus depreciation is available for qualified new and used property that’s acquired and placed in service in a calendar year. Deductions from the purchase of automotive equipment can be limited based upon weight or price. New and pre-owned heavy SUVs, pickups and vans acquired and put to business use are eligible for 100% first-year bonus depreciation.
The only requirement is that you must use the vehicle more than 50% for business. If your business usage is between 51% and 99%, you can deduct that percentage of the cost in the first year the vehicle is placed in service. This generous tax break is available for qualifying vehicles that are acquired and placed in service through December 31, 2022.
The 100% first-year bonus depreciation write-off will reduce your federal income tax bill and self-employment tax bill, if applicable. You might get a state tax income deduction, too.
Weight requirement
This option is available only if the manufacturer’s gross vehicle weight rating (GVWR) is above 6,000 pounds. You can verify a vehicle’s GVWR by looking at the manufacturer’s label, usually found on the inside edge of the driver’s side door where the door hinges meet the frame. If the vehicle weight is less than 6,000 pounds, the deduction is limited under the “luxury” automobile rules. The maximum deduction in the first year of service would be limited to $18,100.
These tax benefits are subject to adjustment for non-business use. And if business use of an SUV doesn’t exceed 50% of total use, the vehicle won’t be eligible for the expensing election, and would have to be depreciated on a straight-line method over a six-tax-year period. Detailed, contemporaneous expense records are essential in case the IRS challenges your business-use percentage.
Keep track of the miles you’re driving for business purposes, compared to the vehicle’s total mileage for the year. Recordkeeping is easier today because of the many mobile apps designed for this purpose. You could also simply keep a handwritten calendar or mileage log in your vehicle and record details as business trips occur.
The right moves
Are you considering buying an eligible vehicle and placing it in service in 2022? Before signing the sales contract, consult with us to help evaluate the right business tax moves. Another consideration-if the vehicle is used by an employee for commuting and other personal usage, the value based upon IRS tables must be added to the wages reported on Form W-2.
The HoganTaylor Tax Practice
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com. You may also contact Denise Felber, Tax Partner, at dfelber@hogantaylor.com
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
