Vehicle Tax Deductions for 2023

Last-Minute Purchases to Maximize 2023 Vehicle Tax Deductions

Potential Business Vehicle Tax Deductions for 2023

Looking to maximize your vehicle tax deductions for 2023 and wondering if there’s still time?
– Do you need a replacement business car, SUV, van, or pickup truck?
– Do you need tax deductions this year?
– Do you need a tax credit to offset what you owe to the IRS?

2023 Tax Credits / Vehicle Deductions:

If you answered yes to any of these questions, this article could provide good news for you.  Thanks to the Tax Cuts and Jobs Act (TCJA), you can write off the full business cost of certain vehicles, 89 percent of other vehicles, and up $20,200 for other vehicles. If you plan on purchasing an electric vehicle or a plug-in hybrid electric vehicle, you may qualify for a tax credit of up to $7,500.

Get the Timing Right for Your Vehicle Deduction

Don’t procrastinate. If you want the vehicle deduction and/or the tax credit, you need to own the vehicle, and place it in business service on or before December 31, 2023.
To ensure compliance with the “placed in service” rule, drive the vehicle at least one business mile on or before December 31, 2023. In other words, you want to both own and drive the vehicle to ensure that it qualifies for the big deductions.

Vehicle Tax Deductions

1. Buy a Heavy New or Used SUV, Crossover Vehicle, or Van

Let’s say that on or before December 31, 2023, you or your S corporation buys and places in service a new or used SUV or crossover vehicle that the manufacturer classifies as a truck and that has a gross vehicle weight rating (GVWR) of 6,001 pounds or more. This newly purchased vehicle gives you the ability to
– elect bonus depreciation of 80 percent thanks to the TCJA;
– elect Section 179 expensing of up to $28,900;
– elect MACRS depreciation using the five-year table; and avoid the luxury limits that cap vehicle depreciation deductions.
Key point. Bonus depreciation applies to both new and used vehicles and other property, thanks to the TCJA.
To obtain the largest deduction on the heavy SUV, do this in the order described below:
– Claim Section 179 expensing.
– Claim bonus depreciation. (Note: This is automatic unless you elect out.)
– Claim MACRS depreciation.

Example 1.
You buy a $100,000 heavy SUV, which you will use 90 percent for business use. Your write-off will look like this:
– $28,900 in Section 179 expensing
– $48,880 in bonus depreciation
– $2,440 in 20 percent MACRS depreciation, or $611 if the mid-quarter convention applies because you placed more than 40 percent of your MACRS assets in service in the final quarter of the year.

So the 2023 write-off on this $90,000 (90 percent business use) SUV can be as high as $80,220 ($28,900 +$48,880 + $2,440). If you don’t want 80 percent bonus depreciation in 2023, you can elect out of it.
Example 2. On or before December 31, 2023, you buy and place in service a $53,900 qualifying SUV for which you can claim 100 percent business use. If you elect out of bonus depreciation and elect $28,900 in Section 179 expensing instead, your maximum 2023 write-off for the cost of the SUV is either $33,900 or$30,150, computed as follows:
– $28,900 in Section 179 expensing, plus
– $5,000 in MACRS depreciation (20 percent x $25,000)—or $1,250 in MACRS depreciation if the mid-quarter convention applies.
From what we’ve seen, almost all SUVs, crossover vehicles, and vans with a GVWR of 6,001 pounds or more qualify as trucks for purposes of both 80 percent bonus depreciation and the up-to-$28,900 Section 179 expensing election.

2. Buy a New or Used Pickup for 2023 Vehicle Tax Deductions

If you or your corporation buys and places in service a qualifying pickup truck (new or used) on or before December 31, 2023, then this newly purchased vehicle gives you four big vehicle tax deductions benefits:

  1. Bonus depreciation of up to 80 percent
  2. Section 179 expensing of up to $1,160,000
  3. MACRS depreciation using the five-year table
  4. No luxury limits on vehicle depreciation deductions

To qualify for full Section 179 expensing, the pickup truck must have a GVWR of more than 6,000 pounds, and a cargo area (commonly called a “bed”) of at least six feet in interior length that is not easily accessible from the passenger compartment.

Example. You pay $55,000 for a qualifying pickup truck that you use 91 percent for business. You use Section 179 to write off your entire business cost of $50,050 ($55,000 x 91 percent).
Short bed. If the pickup truck passes the more-than-6,000-pound-GVWR test but fails the bed-length test, the tax code classifies it as an SUV. That’s not bad. The vehicle is still eligible for expensing of up to the $28,900SUV expensing limit and 80 percent bonus depreciation. (See Example 1 above for how the SUV treatment works.)

3. Buy an Electric Vehicle 

If you purchase an all-electric vehicle or a plug-in hybrid electric vehicle, you might qualify for a tax credit of up to $7,500. You take the credit first, and then follow the rules that apply to the vehicle you purchased.

To discuss these vehicle strategies and more, fill out the form on this page or call us at 440-777-2207.

Small Business Tax Services

As an expert in small business tax services and tax consulting Ken-Mar Tax eats, sleeps and breathes small business tax strategies.  Being an enrolled agent allows founder, Ken Weinberg, to represent you to the IRS - something only a CPA, tax attorney and Enrolled Agent can do. EAs are the only federally licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS. It also means he is continuously being updated on the new IRS tax codes and taking classes from the IRS that provide guidance on how to file returns so that they are not "flagged."

When you get your taxes prepared by Ken Mar Tax you also have the option to purchase the Tax Audit Protection Plan to avoid the extra costs of paying for audit representation. If you are audited by the IRS, State of Ohio or local taxing authorities, Ken-Mar Tax will meet with the taxing authorities on your behalf to negotiate a settlement for you. The fee covers all costs up to the Appeals level, including up to 15 hours of correspondence with the auditing party – either the IRS, State of Ohio or locality.

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