If you use the vehicle as part of your business operations, such as delivering products or driving to a job site, your company may be eligible for certain tax deductions. But there are some important details to consider so you know what you can include, when you can do it, and how to write off those expenses.
Which vehicles are eligible for tax relief?
If you use the car for business purposes, you may be eligible to deduct some vehicle-related expenses. The IRS defines a car as any four-wheeled vehicle, including trucks or vans, used on public streets, roads, and highways. The gross unlade weight must not exceed 6,000 lbs. Exceptions include ambulances, hearses, vehicles used to transport people or property in exchange for money or rental, or trucks or vans that are not eligible for personal use. You can take this tax deduction a few different ways, from standard mileage rates and actual car expenses to Section 179 Deductions Vehicle List. However, if you use the car for business and personal driving, you must split the cost based on your actual mileage.
When calculating your standard mileage rate, you multiply the number of business miles you drive by the standard mileage rate. The rate changes periodically, and through 2022, the standard mileage rate for businesses is set at 58.5 cents per mile. 2 Driving miles from your home to and from work, also known as commute miles, are not deductible. You must keep detailed records and be able to provide sufficient evidence to support your claim. If you use the standard mileage deduction, you cannot include other expenses related to your car, except business-related tolls and parking. However, parking fees at your workplace cannot be deducted as they are considered commuting expenses.
To use the standard mileage rate on a vehicle you own, you must use it within the first year your business can use the vehicle. After the initial year, you can choose between standard mileage rates and actual charges. If you are renting a car, you must adhere to the standard mileage rate for the duration of the rental (including renewals).
Actual expense deduction
Alternatively, you can choose to actually deduct car expenses. To do this, you must track all eligible car-related expenses. If you use the car for personal and commercial use, you can only deduct the percentage used for business use. For example, say you work in sales and drive 16,000 miles in your car in 2021—12,000 for business and 4,000 for personal use. This means you can claim 75% (12,000 ÷ 16,000) of your car expenses as a business expense.
Section 179 Deduction
When purchasing equipment and other durable items for your business, you typically deduct some of the cost over time through depreciation. However, the Section 179 deduction is intended to incentivize small business owners to buy equipment and invest in their companies. Section 179 allows a business to purchase or finance the full purchase price of qualifying equipment, such as a vehicle, that was purchased or financed and put into service at some point in the same tax year.
Section 179 Deduction Limits
To qualify for this deduction, you must use the vehicle for business purposes more than 50% of the time. Also, you can only claim the Section 179 deduction the year the car is put into service; a car you bought for personal use in 2020 and then changed to commercial use in 2021 is not eligible for the deduction. The IRS has specific rules for sport utility vehicles and certain other vehicles, so be sure to familiarize yourself with the Section 179 deduction guide to see if it qualifies before buying a vehicle for your business.
Some SUVs that weigh over 6,000 pounds
Examples of SUVs or SUVs weighing Vehicles over 6,000 Pounds include the Audi Q7 3.0T Premium, BMW X6 xDrive35i, Buick Enclave FWD, Cadillac Escalade ESV Base 4×2, Lincoln Navigator Base, and Lexus LX570 Base. Lexus is the only SUV on the list with a curb weight of 6,000 pounds or more. The remaining vehicles are just over 6,000 pounds in gross vehicle weight or GVW division.
Curb weight refers to the weight of the vehicle without passengers or cargo, while GVW indicates how much the vehicle can carry, as stated by the manufacturer. Vehicles with a curb weight over 6,000 pounds are not considered passenger vehicles, which means they are not subject to the IRS depreciation limits and can be used for a full depreciation deduction each year. A vehicle with a curb weight of 6,000 pounds or less but a GVW of more than 6,000 pounds is not a passenger car if it is marked as a truck or van by the manufacturer. Businesses can take substantial deductions for trucks and vans with a GVW over 6,000 pounds as long as they are primarily used for business. People who plan to buy a vehicle over 6,000 GVW and have a similar weight vehicle to dispose of can claim a hefty tax deduction for their current year, whether the old vehicle is traded or sold.