A smart tax saving strategy is to always buy something outside the regular passenger auto classification. Heavy trucks, SUVs and vans are eligible for higher depreciation in 2018.
The maximum depreciation exclusion for heavy SUV s under the section 179 depreciation is $25,000
Under the new Tax Cuts and Jobs Act, to qualify for the Section 179 depreciation deduction and 100% first year bonus depreciation privileges, an SUV:
1. Must be placed in service between September 28, 2017 and December 31, 2022.
2.It can be either new or used.
3.It must be used for more than 50 percent for business.
4.Gross vehicle weight must be more than 6000 pounds.
Rules for corporate vehicles
When a heavy SUV, pickup or van is owned by an S or a C Corporation, the vehicle must be used more than 50 percent for actual corporate business activities in order to qualify for the IRS section 179 deduction. Any personal use by an employee who is more than 5% shareholder will not count as business use for this purpose even if it is reported as additional taxable compensation on the employee’s W2. This also applies for corporate employees who are related to more than 5% shareholders.
If the corporation does not meet the over 50% business use test, the corporation must depreciate the vehicle using the straight line method and it will take six years to fully depreciate the vehicle. The corporation then cannot take the IRC section 179 deduction.
Lesser deductions for cars, light trucks and light vans
For newer or used passenger vehicles that are placed in service after December 31,2017 and used over 50 percent for business, the maximum annual depreciation deductions allowed under the tax cuts and the jobs act (TCJA) are as follows :
- Year 1- $10,000
- Year 2-$16,000
- Year 3-$9,600
- Year 4 $5,760 and continue until the vehicle is fully depreciated.
Important point : If the vehicle was used less than 100 percent for business, the numbers previously reported must be apportioned for non-business usage. If the business uses less than 50 percent or less, then the depreciation should be further reduced using the straight line method to calculate these deductions.