Purchasing a vehicle for business purposes can provide significant tax benefits under the U.S. tax code, especially when the vehicle is classified as heavy enough to qualify under Section 179 and Bonus Depreciation provisions. Here’s how you can legally write off 80% or more of your work vehicle on your taxes.
Key Qualification: Vehicle Weight
To qualify for the most significant tax deductions, the vehicle must weigh 6,000 pounds or more in gross vehicle weight rating (GVWR). This threshold allows the vehicle to be considered "heavy" for tax purposes under Section 179 of the IRS Code.
Examples of eligible vehicles include:
- SUVs: Lamborghini Urus, Rolls Royce Cullinan, Cadillac Escalade, Range Rover, and similar.
- Trucks: Ford F-150, Ram 1500, GMC Sierra, etc.
- Vans: Mercedes-Benz Sprinter, Ford Transit.
Tax Codes Allowing Vehicle Write-Offs
1. Section 179 Deduction:
- Allows businesses to deduct the full or partial purchase price of qualifying vehicles and equipment used for business.
- SUVs weighing over 6,000 pounds have a $28,900 limit for the Section 179 deduction as of the most recent tax year.
- For other qualifying vehicles (not SUVs), you can deduct the full purchase price.
2. Bonus Depreciation (IRC §168(k)):
- For vehicles used 100% for business purposes, you can deduct up to 100% of the vehicle’s cost in the first year (subject to changes in the law). In 2025, Bonus Depreciation allows up to 80% of the vehicle's cost to be written off.
- Bonus Depreciation applies to both new and used vehicles.
3. Mileage or Actual Expense Deduction:
- Business owners can choose between the Standard Mileage Rate or Actual Expense Method for ongoing vehicle expenses.
Steps to Write Off a Business Vehicle
1. Determine Business Use Percentage
- 100% Business Use: If the vehicle is used exclusively for work, you can claim the maximum deductions.
- Partial Business Use: If the vehicle is used for both personal and business purposes, you’ll need to calculate the percentage of business use by keeping a log of miles driven for business.
2. Verify Vehicle Eligibility
- Confirm the GVWR is 6,000 pounds or more using the manufacturer’s specifications.
- Ensure the vehicle is purchased and placed into service during the tax year for which you’re claiming the deduction.
3. Claim Deductions Under Section 179
- Deduct up to $28,900 for eligible SUVs.
- Deduct the entire purchase price for trucks, vans, and other heavy vehicles.
4. Apply Bonus Depreciation
- After applying Section 179, use Bonus Depreciation to deduct up to 80% of the remaining cost for vehicles in service in 2025.
- Bonus Depreciation applies automatically unless you elect out of it.
5. Record Ongoing Expenses
Keep receipts and records for:
- Gasoline
- Maintenance
- Insurance
- Repairs
Deduct these under the Actual Expense Method or track miles for the Standard Mileage Rate.
6. File Your Taxes
- Use IRS Form 4562 to claim Section 179 and Bonus Depreciation.
- Report mileage or actual expenses using Schedule C (for sole proprietors) or your business tax return (e.g., Form 1120 for corporations).
Example Calculation
Vehicle: Lamborghini Urus
Purchase Price: $250,000
Business Use Percentage: 80%
GVWR: 6,724 pounds (qualifies for Section 179)
Deduction:
1. Section 179 Deduction: $28,900 (SUV limit).
2. Bonus Depreciation: 80% of remaining balance:
$250,000 - $28,900 = $221,100
80% of $221,100 = $176,880
Total Deduction: $28,900 + $176,880 = $205,780
*This results in over 82% of the vehicle’s cost being deducted.
Best Practices
- Track Business Use: Maintain detailed records of business vs. personal miles driven.
- Consult a Tax Professional: Ensure compliance with IRS rules and maximize deductions.
- Vehicle Use Agreement: If multiple owners or employees use the vehicle, outline its business use in a written agreement.
IRS References
- Section 179 Deduction: IRS Section 179 Overview
- Bonus Depreciation: Internal Revenue Code §168(k)
- Vehicle Expenses: Publication 463 - Travel, Gift, and Car Expenses
By strategically using these provisions, businesses can significantly reduce taxable income and leverage high-value vehicle purchases to their financial advantage.
Add comment
Comments