An SUV might be your vehicle of choice for tax purposes.
Although they can be gas-guzzling and not the most environmentally sound vehicle on the road, an SUV can offer major tax benefits if your business needs to haul people, materials, inventory or equipment around.
Thanks to the Section 179 election, you can immediately write off up to $25,000 of the cost of a new or used SUV, pickup or van purchase (not leased) as long as its gross weight exceeds 6,000 pounds, is placed in service by the end of the business tax year and its business use exceeds 50%.
What’s more, if the vehicle is new (not pre-owned), half of the remaining cost after the 179 election may be deducted as Bonus Depreciation. 20% of the balance can then be deducted as “regular” tax depreciation in the first year.
So for a qualifying new $50,000 100% business use SUV, pickup or van, that’s a first-year write-off of $40,000.
If you need a heavier type vehicle for your business such as a long-bed pickup or van, the 179 option is even better since the limitation is the same as for other business property; that is, up to $500,000 in 2016. That equates to a full write off in year one for a $50,000 vehicle.
Now compare that to the purchase of a new $50,000 passenger car that would fall under the “luxury auto” limitation. The maximum deduction in the first year, assuming 100% business use, including, bonus depreciation and regular depreciation would be $11,160. For bonus depreciation, eligible trucks and vans that are less than 6,000 pounds, the first-year limit is $11,560.
Of course, there are overall limits on all of this. First, the section 179 election cannot exceed your aggregate net business taxable income, but if you operate as a sole proprietor or single-member LLC disregarded entity, any wages you earn count as additional income, as do wages and self-employment earnings of your spouse if filing jointly (special rules apply for partnerships, multi-member LLC’s and corporations). Also, your business use percentage must continue to exceed 50% for the five years following the year placed in service or you will have to recapture some of your previous write-offs as income.
With year-end fast approaching and the constant inundation of dealership commercials during this holiday season, if you are considering a vehicle purchase for your business, you must consider the tax alternatives in your decision.
When it comes to serving your accounting needs, no one has more experience than our team at DSJ. Call us today at 516.541.6549 or email us at to set up an appointment. We look forward to working with you!