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Maximize Your Tax Deductions with Strategic Business Vehicle Purchases

Do you need more tax deductions this year, and do you need a replacement business vehicle?

If so, you can solve both issues by getting your new vehicle in service by December 31.

There’s a rule called “placed in service”; to comply, drive the vehicle at least one mile for business purposes on or before December 31. You must own and drive the vehicle to ensure it qualifies for significant deductions.

Now that you have the basics, let’s go to the deductions.

Buy a New or Used Van, SUV, or Crossover

If you buy a new or used SUV or Crossover classified as a truck with a 6,001+ pounds gross vehicle weight rating (GVWR) and place it in service by December 31, you get these benefits:

  1. Bonus depreciation: 80%
  2. Section 179 expensing: Up to $28,900
  3. MACRS depreciation using the five-year table
  4. No luxury limits on vehicle depreciation deductions

Example: If you buy a $100k SUV with a GVWR of 6,080 pounds and use it 90% for business. Your write-off could look like this:

  • Section 179 expensing: $28,900
  • Bonus depreciation: $48,880
  • 20% MACRS depreciation: $2,440, or if the mid-quarter convention applies: $611

The write-off on this $90,000 (90% used for business) SUV can be as high as $80,220 ($28,900 + $48,880 + $2,440).

Buy a New or Used Pickup

If you buy and place in service a qualifying pickup truck (new or used) by December 31, 2023, you get four big benefits:

  1. Bonus depreciation: Up to 80%
  2. Section 179 expensing: Up to $1,160,000
  3. MACRS depreciation using the five-year table
  4. No luxury limits on vehicle depreciation deductions

To qualify for Section 179 expensing, the pickup truck must have:

  • 6,000+ pounds GVWR
  • A cargo area, often called a ‘bed,’ is at least six feet long and inaccessible from the passenger compartment.

Example: You paid $55k for a qualifying pickup truck that you use 91% for business. Using Section 179, you can write off your entire business cost of $50,050 (91% of $55,000).

Short bed: If the pickup truck is above the 6,000+ pound GVWR test but fails the bed-length test, it is classified as an SUV. It is still eligible for expensing up to the $28,900 SUV expensing limit and 80% bonus depreciation.

Buying an Electric Vehicle

If you purchase an EV or a plug-in hybrid electric vehicle, you might qualify for up to $7,500 in tax credits.

First, you take the credit and then follow the rules that apply to the vehicle.

Tax Deduction for Business Vehicles FAQs

Vehicles with a gross vehicle weight rating (GVWR) of more than 6,000 pounds that are used for business purposes qualify for bonus depreciation.

For SUVs, you can expense up to $28,900. For qualifying pickups, you can expense up to $1,160,000, provided they meet specific criteria.

Yes, deductions are based on the percentage of business use. For example, if you use a vehicle 90% for business, you can deduct 90% of the eligible expenses.

All-electric and plug-in hybrid vehicles can qualify for up to $7,500 in tax credits.

To qualify for tax deductions, the vehicle must be owned and driven for business purposes at least one mile before December 31.

New and used vehicles can qualify for bonus depreciation and Section 179 expensing.

Yes, weight and use. For example, pickups must have a bed length of at least six feet.

Yes, only the business-use portion of the vehicle’s expenses is deductible. Personal use must be excluded from the deduction calculation.

The Modified Accelerated Cost Recovery System (MACRS) depreciates business assets faster over a specified period.

Maintain detailed records of purchases, business use, mileage, and expenses to substantiate your deductions in case of an IRS audit.

Replacing your business vehicle before the end of the year can provide significant tax benefits. By understanding the different deductions available for new or used SUVs, pickup trucks, and electric vehicles, you can make a smart decision that maximizes your tax savings.

Ensuring your vehicle is placed in service by December 31 and meets the specific requirements will help you take full advantage of these opportunities.

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