With this smaller vehicle, your first-year depreciation write-off would be only $11,160. In some (but not all) states, you also may be eligible for a generous state income tax deduction.Īlternatively, suppose you buy a new $50,000 sedan and use it 100% for business.
The first-year deduction of $40,000 will reduce both your federal income tax bill and your self-employment tax bill. $2,500 regular depreciation (20% of the remaining purchase price after the above two deductions). $12,500 bonus depreciation (half of the remaining purchase price after the Sec. So, the first-year depreciation would be a whopping $40,000, including the following elements:Ģ. It’s used 100% in your sole proprietorship business. Here are a couple of examples to show how these favorable tax breaks can add up.įirst, suppose you buy a new $50,000 heavy SUV before year end. Important note: The generous first-year depreciation deduction rules explained in this article are available only for vehicles used more than 50% for business. In the first year, the regular depreciation rate is usually at 20% for vehicles. Finally, the business-use portion of the remaining cost (if any) is depreciated under the “regular” depreciation rules. (Pickups with shorter beds aretreated as SUVs, however.)Second, you can claim the first-year 50% bonus depreciation deduction, which is allowed only for new (not used) vehicles. Importantly, pickups with cargo beds that are at least six feet in interior length aren’t classified as SUVs. For those vehicles, you can often write off the entire business-use portion of the cost in the first year under the Sec. 179 deduction is limited to $25,000.Heavy non-SUVs - such as long-bed pickups and vans - are unaffected by the $25,000 limit.
If the vehicle is classified as an SUV under the tax rules, the Sec. The business portion of the cost of your heavy vehicle is first reduced by the Section 179 deduction. Heavy Vehicle Depreciation Tax Breaks in a Nutshell By taking advantage of these rules, you may be able to write off the entire business-use portion of a heavy vehicle’s cost in the first year. F avorable depreciation rules for business use of “heavy” SUVs, pickups and vans were locked in by the Protecting Americans from Tax Hikes (PATH) Act of 2015.
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