Can I deduct my luxury vehicle as a business expense?
So it’s time to get a new car and you have a business need for the car. Did you know you may be able to deduct your vehicle purchase as a business expense? There are caveats to this of course since the IRS has limits on how much depreciation you can take each year on cars, but let’s get into how you may be able to do this…
1. You must have a business need for the vehicle
The IRS rule is that expenses must be ordinary and necessary to be deductible as a business expense. This means that the car must be needed in the day-to-day operations of your business.
2. Determine your business use percentage of the car.
The business use of the vehicle must be more than 50%. If your business use is less than 50% your vehicle will not qualify for the Section 179 or Bonus depreciation discussed below.
3. Is your vehicle more or less than 6000 pounds?
Section 179 allows certain taxpayers to elect to expense the cost of certain depreciable assets upfront. If your vehicle is less than 6,000 pounds you may deduct up to $11,200 for Section 179. Cars over 6000 pounds but not over 14,000 pounds have a higher limit of $27,000. (note these are 2022 amounts and may be adjusted for inflation in 2023).
In addition to the section 179 deduction, you can also take advantage of the special bonus depreciation which increases your allowable first year depreciation to 19,200 for a vehicle less than 6000 pounds.
If your vehicle is over 6000 pounds you may be able to take some additional deductions as well.
It is always best to consult a CPA or someone who is knowledgeable about the tax code to determine what your options are.
Set some time to chat with our CPA here.