Apr 18, 2021
Submitted by Julia Tsoy
165 Passaic Avenue, Suite 411
Fairfield, NJ 07004
If you’re thinking about buying or replacing a vehicle for use in your business, you may want to consider choosing a heavy sport utility vehicle (SUV)—these vehicles might allow you to benefit from lucrative tax rules.
100% first-year bonus depreciation
Under current law, new and pre-owned heavy SUVs, vans and pickups that are acquired and put to business use in 2021 are eligible for 100% first-year bonus depreciation, with only one additional requirement: the vehicle must be used more than 50% for business. If the vehicle is used between 51% and 99% for business, that percentage of the cost can be deducted in the first year the vehicle is placed in service. The 100% first-year bonus depreciation write-off is available through December 31, 2022 for qualifying vehicles.
This significant tax break will reduce your federal income tax bill—and, if applicable, your self-employment tax bill. You may also receive a state tax income deduction.
GVWR requirement and additional notes
If you’re planning to take advantage of this option, you’ll need to make sure that the manufacturer’s gross vehicle weight rating (GVWR) is above 6,000 pounds. The GVWR of a given vehicle can be verified by checking the manufacturer’s label, which is usually on the inside edge of the driver’s side door, at the place where the door hinges meet the frame.
It’s worth noting that these tax benefits are subject to adjustment for non-business use—and that if business use of an SUV is less than 50% of total use, it won’t be eligible for the expensing election. This means that the vehicle would have to be depreciated on a straight-line method over a six-tax-year period.
You’ll also want to keep detailed, contemporaneous expense records, since the IRS might question the claimed business-use percentage of your heavy vehicle.
Essentially, you’ll want to keep a record of miles driven for business purposes, in addition to the vehicle’s total mileage for the year. You can record details as business trips occur by keeping a mileage log or calendar in your car—or you can take advantage of new apps and mobile technology, which simplify the demand for recordkeeping.
If your business is in the market for a new car, buying an eligible vehicle and placing it in service before the end of the 2021 tax year could secure a big write-off on your tax return. We can help you evaluate the right tax strategies for your business (before you sign a sales contract). Please do not hesitate to contact us with any questions or concerns.