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Depreciation On Vehicles

Updated: Jan 4, 2023

Here is one of the most basic of business expense topics that comes up a lot. Why? Because Congress has decided to create a maze for navigating through all the ups and downs of figuring out how much depreciation expense you can take on a vehicle.

First you need to understand the basic rules. Autos, unless they are heavier than 6,000 lbs. Gross Vehicle Weight Rating (GVWR) are considered “Luxury Autos.” How about that? A Yugo is a “Luxury Auto” go figure!

Luxury Auto classification earns you the right to have a limitation on depreciation expense allowed. There is a depreciation tax deduction code called “Section 179.” That allows up to $1,000,000 total for the business every year of special increased deprecation. But wait! For Luxury Autos, there is a limit to $27,000 in the first year. (I think a Yugo costs less than that, so it might be able to deduct 100%! But how many folks do you see driving a Yugo?)

There is another limiting factor. How much of the vehicle is used for business purposes? IRS is onto folks who only have one vehicle. You have to use it for personal trips to the Grocery, Doctor, etc. so, reduce the percentage of business use down from 100% to something reasonable. (Ever hear the old saying, “Pics get fat, hogs get slaughtered.”) So now your Section 179 depreciation deduction is less than $27,000, because you have to apply the business use percentage against that.

How about those vehicles over 6,000 lb. GVWR? Well, the Section 179 deduction is still limited to $27,000, but a whole new category of depreciation expense is now available. It’s called “Bonus Depreciation.” Under the Bonus Depreciation rules, you can deduct 100% of the business use with no limitation. Thus, a larger vehicle that meets the 6,000 lb. rule, can deduct 100% of the business use. Don’t forget the same rules about business use apply though. (Way to beat that is to have a 2nd vehicle that you use for personal purposes.) If you paid $60,000 for your larger vehicle, you get to deduction up to $27,000 for Section 179 and an additional $33,000 for Bonus Depreciation, in effect, getting a 100% write-off in the year purchased!

Trivia Info: A Tesla Model X has a GVWR of 6,768. That means it qualifies as a large vehicle with no limitation on first year depreciation expense allowed. Now to me, I would consider the Tesla as a “Luxury Auto” but under tax law it is not. A fully loaded HUMMER GVWR is 10,550. Once again, qualifying it for no limitation on depreciation expense. I would also consider a fully loaded HUMMER as a “Luxury Auto.”

So, there you have it folks. According to Congress, a Yugo is a “Luxury Auto” and a Tesla or HUMMER are not! You gotta love Congress!

Have you heard? Ezekiel 16:27a says, “Behold, therefore, I stretched out my hand against you and diminished your allotted portion and delivered you to the greed of your enemies…”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.

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