Thanks to recent tax law changes, many merchants who purchase heavy-duty SUVs and similar vehicles for their businesses can now take huge depreciation deductions. In many cases, they were able to deduct the full cost of expensive heavy vehicles within a year. This development has never happened before.
Limited depreciation deduction for passenger vehicles
If your car is a passenger car, there is a limit to how much you can deduct each year through depreciation. Passenger cars are:
- Any four-wheeled vehicle
- Mainly used on public streets and highways, and
- The gross unladed weight is 6,000 lbs. or less
- For vans and trucks, the 6,000-pound limit is based on gross vehicle weight.
If your car is a passenger car, you can depreciate up to $10,000 of the cost in the first year. This is true no matter how much you paid for the car. You can also deduct an additional $8,000 in the first year through bonus depreciation (see below). You can deduct up to $16,000 in the second year, up to $9,600 in the third year, and $5,760 each year thereafter.
There is no limit to the depreciation of heavy vehicles
The annual limit on vehicle depreciation does not apply to trucks, vans, and SUVs that are built on truck chassis and rated by the manufacturer for gross vehicle weights in excess of 6,000 pounds. This means that owners of such vehicles can take advantage of two huge tax breaks:
- Bonus depreciation, and
- Article 179
- 100% additional depreciation on heavy vehicles
A massive new tax law called the Tax Cuts and Jobs Act (TCJA) went into effect in 2018. Among other things, it greatly expands bonus depreciation. From 2018 to 2022, you can deduct up to 100% of the cost of most types of personal property used in business in one year, with bonus depreciation. However, the additional depreciation limit for passenger vehicles is $8,000. Since passenger vehicle depreciation limits don’t apply to heavy vehicles, you can take advantage of the depreciation incentives when you buy one. If you use the vehicle 100% for business, you can deduct 100% of the cost within a year.
Heavy Vehicle Bonus Depreciation: Example
Scenario 1: Arthur purchased a $100,000 truck in 2018 and he uses his transportation business 100% of the time. He may deduct the full $100,000 in costs in 2018 using 100% bonus depreciation. If you use less than 100% of your vehicle for commercial use, you must reduce your deduction accordingly. However, you must use the vehicle at least 51% of the time for the business to use bonus depreciation.
Scenario 2: Bill purchased a 6,500-pound SUV for $50,000 in 2018. He uses the car 60% of the time for his nursery business, so his depreciation basis is $30,000 (60% x $50,000 = $30,000. He can deduct the full $30,000 in costs) 100% bonus in 2018 depreciation.
Section 179 Deduction
Another way to deduct the cost of heavy vehicles is to use Section 179 for Cadillac Escalade. Section 179 allows business owners to deduct $1 million per year for personal property purchased by their business. However, for trucks and SUVs, the Section 179 deduction is limited to $25,000. For these purposes, an SUV is any four-wheeled vehicle with a gross vehicle weight of 6,000 to 14,000 pounds that is primarily designed or used to transport passengers on public streets, roads, or highways. But with the bonus depreciation rate set at 100% between 2018 and 2022, there seems to be no reason to use Section 179.
How to Qualify for the Bonus Depreciation Deduction
To qualify for bonus depreciation or Cadillac Escalade Section 179 you must have used your vehicle for business more than 50% of the time. The same goes for the full five-year depreciation period that applies to the vehicle. If you fall below 50% utilization at any time during that five-year period, you will have to repay your bonus depreciation deduction. That’s why it’s critical to keep track of your business miles, no matter what method you use to deduct them.
Heavy Vehicle List
Below you will find a list of heavy duty vehicles. The loaded weight of these vehicles exceeds 6,000 pounds. The table below is not an exhaustive list. You can consult the car manufacturer’s website to find out the weight of the vehicle.
Cadillac
- Cadillac Escalade 2WD
- Cadillac Escalade AWD
- Cadillac XT5
- Cadillac XT6
Toyota
- Toyota 4Runner 2WD LTD
- Toyota 4Runner 4WD LTD
- Toyota Land cruiser
- Toyota Sequoia 2WD LTD
Chrysler
- Chrysler Pacifica
- Chrysler Pacifica Hybrid
Dodge
- Dodge Durango 2WD
- Dodge Durango 4WD
- Dodge Grand Caravan