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Boost your 2016 deductions by buying a business vehicle this year

Posted by Matt Evans Posted on Sept 26 2016

If you’re looking to boost your deductions — and reduce your 2016 tax bill — you may want to consider purchasing a business vehicle before year end. Business-related purchases of new or used vehicles may be eligible for Section 179 expensing, which allows you to immediately deduct, rather than depreciate over a period of years, some or all of the vehicle’s cost. But the size of your deduction will depend in part on the gross vehicle weight rating.

The limits

The normal Sec. 179 expensing limit generally applies to vehicles with a gross vehicle weight rating of more than 14,000 pounds. The limit for 2016 is $500,000, and the break begins to phase out dollar-for-dollar when total asset acquisitions for the tax year exceed $2.01 million.

But a $25,000 limit applies to SUVs rated at more than 6,000 pounds but no more than 14,000 pounds. Vehicles rated at 6,000 pounds or less are subject to the passenger automobile limits. For 2016 the depreciation limit is $3,160. The amount that may be deducted under the combination of Modified Accelerated Cost Recovery System (MACRS) depreciation and Sec. 179 for the first year is limited under the luxury auto rules to $11,160.

In addition, if a vehicle is used for business and personal purposes, the associated expenses, including depreciation, must be allocated between deductible business use and nondeductible personal use. The depreciation limit is reduced if the business use is less than 100%. If the business use is 50% or less, you can’t use Sec. 179 expensing or the accelerated regular MACRS; you must use the straight-line method.

Maximize your tax benefits

Many additional rules and limits apply to these breaks. So if you’re considering a business vehicle purchase, contact us to learn what tax benefits you might enjoy if you make the purchase by December 31.

© 2016

This blog is published to provide you with an informative summary of current business, financial, and tax planning opportunities.  Do not apply this general information to your specific situation without additional details.  Be aware that the tax laws contain varying effective dates and numerous limitations and exceptions that can not be summarized easily.  For details and guidance in applying the tax rules to your specific circumstances, please contact us.

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