Small Business FAQ: Can I write off my truck?

A question we get asked frequently by small business owners is whether or not they can write off their vehicle. Of course, the answer is different for every client, but here are a few things to consider:

Under current law, new and pre-owned heavy SUVs, pickups and vans are available for 100% first year bonus depreciation if the vehicle is used 100% for business. If you use it at least 50% for business, then you can take the business use percentage as first year bonus depreciation. Sounds, great, right?! However, there are a few stipulations:

  • Vehicle must weigh more than 6,000 pounds

  • Must be used in a business

  • Must be placed in service the year of purchase

  • You can finance the vehicle and report the interest expense as a business deduction

  • You must keep track of all vehicle expenses and report the business use of the total of these expenses

  • You must keep track of your total miles and your business miles

  • If you sell or trade-in your vehicle before the end of 5 years, then you have to report depreciation recapture as income for the portion of the five years it wasn't a business asset

Wondering how to handle auto expenses? It can be tricky! Your choice is between Actual Expenses (keeping track of all expenses on the vehicle, as well as a mileage log) or the Standard Mileage Method (keeping a mileage log only). Here’s how you decide what’s right for you:

  • Tip #1 – If you are going to put on A LOT of business miles, and the car is generally a lower purchase cost, then the Mileage Method is best.

  • Tip #2 – If you’re NOT going to have a lot of business miles, and it’s an average-cost vehicle used exclusively or primarily for business, then you will lean towards the Actual Method.

  • Tip #3 – If you’re NOT going to have a lot of business miles, and it’s a more expensive car used exclusively or primarily for business, you should consider leasing and the Actual Method. You’ll have lower monthly payments making a better economic decision.

  • Tip #4 – If you are going to have low miles and it’s a lower-cost vehicle used primarily or exclusively for business, I would still lean towards the Actual Method because the miles won’t give you the benefit compared to at least some type of depreciation.

  • Tip #5 – If you are going to use your car part-time for business because you have a day job, you will typically use the Mileage Method. The reason being is that you have to show at least 50% business use in order to utilize the actual method.

  • Tip #6 – If you are going to buy a 6,000 lb or more SUV or truck, you will generally lean towards the Actual Method because you are going to have a lower MPG pushing up your actual costs and bonus depreciation is 100 percent. In other words, you can possibly write off the entire vehicle in the first year.

  • Rule #7 – If you have a high MPG (think hybrid or electric), but still have average use and miles, you will lean towards the Mileage Method because your operating costs are going to be much lower generally.

Any questions? Email us at cpa@sherwoodtax.com and a member of our team will be in touch to help you as soon as possible.

We draft these Tax Tips to assist you. That said, they do not consist of tax advice nor are they intended to be a comprehensive summary of the tax law. If you have specific questions please let us know and we are always happy to assist you.

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