Faster write-off for heavy sport utility vehicles (SUVs)

Cars are subject to more restrictive rules than those that apply to other depreciable assets.

The TCJA added additional increases.  If you place a vehicle in service in 2018, then the maximum deductions are

$18,000 for year 1, including bonus of $10,000

$16,000 for year 2

$9,600 for year 3

$5,760 for every additional year that you have basis.

Your state should have different rules.  They usually are lower deductions.

Were cars not subject to the restrictive rules, you would be entitled to a deduction, for a car
exclusively used in business, of 20% of the cost of the car in the year you place it into service. Also, it
is possible that you would qualify for an election to “expense” (i.e., deduct in the first year) an
additional amount of the car’s cost. However, under the so-called “luxury auto” rules, depreciation and
expensing deductions are artificially “capped.”

  •  For example, for an automobile first placed in service in 2017, the maximum depreciation
    deduction for the first tax year in its recovery period (i.e., 2017) is limited to $11,600; $5,100
    for the second tax year; $3,050 for the third tax year; and $1,875 for each succeeding tax
    year. The effect is generally to extend the number of years it takes to fully depreciate
    the vehicle.

Because of the restrictions for cars, you may be better off tax-wise (if not gasoline mileage-wise) if
you buy one of the sport utility vehicles (SUVs) instead of a car. That’s because the regular annual
depreciation and expensing caps for passenger automobiles don’t apply to trucks or vans (and that
includes SUVs) that are rated at more than 6,000 pounds gross (loaded) vehicle weight.

New SUVs that don’t qualify for 100% bonus depreciation are eligible for 50% bonus depreciation in
the placed-in- service year and depreciation, at an accelerated rate, of the remaining 50% of the cost
in the six-tax- year period beginning in the placed-in- service-year. Note that you may also be eligible
to elect to expense (see above) up to $25,000 of the cost of the SUV, with the 50% bonus
depreciation rate and other depreciation applied to the remaining cost. All of these tax benefits are
subject to adjustment for non-business use (and the more-than- 50% business use rule discussed
below).

If business use of the vehicle doesn’t exceed 50% of total use, the SUV isn’t eligible for bonus
depreciation or expensing and has to be depreciated on a straight-line method over a six-tax- year
period.

For more details about this opportunity to get large write-offs when you buy a heavy SUV for
business, please give us a call.