Drive and save with a tax deduction

How much of your day is spent driving from place to place for business? If you use your automobile more than half of the time for business purposes, you may be able to take a tax savings.

Determining whether or not the use of one’s automobile qualifies for a tax deduction – and by how much – is rather complicated, but we will lay out some of the broad outlines for you below.

The first thing to know is that vehicle usage only qualifies for expensing deduction if it is used more than 50 percent of time for business. Of course, it is important to document this usage for tax purposes by keeping track of miles driven and for what purposes.

If you meet this initial threshold, then the amount of the luxury auto depreciation depends on the size of vehicle. This falls into two categories: those vehicles weighing 6,000 pounds or less (most minivans and SUVs fall in this category) and those weighing over 6,000 pounds. Those vehicles more than 6,000 pounds loaded vehicle weight are exempt from luxury-auto dollar caps.

The IRS adjusts the annual depreciation and expensing deductions each year for inflation. The following are the current depreciation dollar caps for automobiles (not a truck or van) under 6,000 pounds:

  • $3,160 for the first year it is placed in service;
  • $5,100 for the second year;
  • $3,050 for the third year; and
  • $1,875 for each succeeding year.

The following are the current limits for trucks or vans less than 6,000 pounds:

  • $3,560 for the first year placed in service;
  • $5,700 for the second year;
  • $3,450 for the third tax year; and
  • $2,075 for each succeeding year.

Bonus depreciation currently is available for the first year a new – not used – vehicle is purchased and used for business purposes. The bonus depreciation amounts are as follows for autos (not a truck or a van less than 6,000 pounds):

  • $11,160 for the year placed in service;
  • $5,100 for the second year;
  • $3,050 for the third year; and
  • $1,875 for each succeeding year.

Bonus depreciation amounts for light trucks or vans less than 6,000 pounds are below:

  • $11,560 for the year placed in service;
  • $5,700 for the second tax year;
  • $3,450 for the third year; and
  • $2,075 for each succeeding year.

One point to note is that these dollar amounts will be reduced proportionally if the business use of the vehicle is less than 100 percent. Again, it is important to keep documentation of the purchase and the mileage driven throughout the year.

Please feel free to contact our office if you have any questions.

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