“You Have Always Wanted to Indulge in Your Dream Sports Car: Congress Just Helped You Foot the Bill” by Ann Miller, CPA | Manager – Tax
You run your own successful business, but the dream sports car of your youth has always been just out of reach financially. 2018 could be the year your dreams come true due to the tax savings on new vehicles purchased by businesses in the recently passed tax law.
The Tax Cuts & Jobs Act has increased annual depreciation deductions available for small and large vehicles.
Small Vehicle Depreciation Deduction
Small vehicles (i.e. weighing less than 6,000 pounds including most non-SUV passenger vehicles) have been limited in their annual depreciation deductions. Under the new tax law, these limits have increased significantly.
The table below provides a comparison of the maximum annual depreciation for a taxpayer using the vehicle for 100% business use:
|Old Law:||New Law:|
|Year 1 – $3,160||Year 1 – $10,000|
|Year 2 – $5,100||Year 2 – $16,000|
|Year 3 – $3,050||Year 3 – $9,600|
|Year 4 and each succeeding year – $1,875||Year 4 and each succeeding year – $5,760|
Let’s compare the aggregate deductions if the same car was purchased in 2017 or 2018 to highlight the substantial tax savings for business owners earlier in the life of the car.
A taxpayer purchases a small vehicle for $50,000 to use 100% for business purpose. If the car was purchased in 2017, the maximum depreciation deduction over the first 4 years (including limited first year bonus depreciation) would have totaled only $21,185 and would have taken another decade to fully depreciate! If the same car is purchased in 2018, the maximum depreciation deduction over the first 4 years (including limited first year bonus depreciation) is $49,360.
Large Vehicle Depreciation Deduction
Large vehicles (i.e. gross weight of more than 6,000 pounds including SUVs, trucks and vans) are not subject to the small vehicle limits above. In fact, they are not subject to any caps and may be depreciated under the new 100% bonus depreciation and more liberal section 179 expensing. Thus, you may be able to fully deduct that SUV in the year of purchase starting in 2018.
So dig out the business card of your local car dealer that you visit every year. 2018 could be the year you finally drive that car off the lot instead of just taking it for a test drive around the block.
Contact your tax advisor at Apple Growth Partners for more information of how these changes apply to your specific situation.
The information contained in this article is current through the published date and may change when regulations and other guidance are issued. Content has been vetted by Apple Growth Partners’ internal tax reform team of licensed CPAs. For more information about this content, or any other matters related to tax reform, please contact your Apple Growth Partners advisor.