Do you need more 2020 tax deductions?

Since the answer is usually YES!

The next question should be easy: Do you need a replacement business vehicle?

If yes, you can take care of both issues at once by purchasing a vehicle for business you can get a tax deduction as well as a new vehicle. Yay!

So here is some fine print to this, you have to buy the car and have it “in service” by 12/31/2020. What it means is you actually have to buy the car and drive it at least 1 mile for business purposes to quality.

Now that you got the fun part (buying the vehicle) let’s get down to what this means for your business.

Buy a New or Used SUV, Crossover Vehicle, or Van

Let’s say that on or before December 31, 2020, you or your corporation buys and places in service a new or used vehicle 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 four big benefits:

The ability to elect bonus depreciation of 100 percent (thanks to the Tax Cuts and Jobs Act)
The ability to select Section 179 expensing of up to $25,900
MACRS depreciation using the five-year table
No luxury limits on vehicle depreciation deductions

Buy a New or Used Pickup

If you or your corporation buys and places in service a qualifying pickup truck (new or used) on or before December 31, 2020, then this newly purchased vehicle gives you four big benefits:

Bonus depreciation of up to 100 percent
Section 179 expensing of up to $1,040,000
MACRS depreciation using the five-year table
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.

Short bed. If the pickup truck passes the more-than-6,000-pound-GVWR test but fails the bed-length test, tax law classifies it as an SUV. That’s not bad. The vehicle is still eligible for either expensing of up to the $25,900 SUV expensing limit or 100 percent bonus depreciation.

Buy a New or Used Qualifying Cargo or Passenger Van

A new or used cargo or passenger van with a GVWR of more than 6,000 pounds that is bought and placed in service on or before December 31, 2020, can qualify for four big tax benefits:

Bonus depreciation of 100 percent
Section 179 expensing of up to $1,040,000
MACRS depreciation using the five-year table
No luxury limits on vehicle depreciation deductions

Cargo van. To qualify for either bonus depreciation or up to $1,040,000 in full Section 179 expensing, the cargo van must

have a GVWR of more than 6,000 pounds;
fully enclose the driver compartment and load-carrying area;
not have seating behind the driver’s seat; and
have no body section that protrudes more than 30 inches ahead of the leading edge of the windshield.

If the van passes the GVWR test but fails one of the other qualifying tests listed above, the law deems it an SUV.

Minivans. Many of the vans that you used to think of as minivans now have GVWRs greater than 6,000 pounds and qualify as SUVs for the Section 179 deduction and 100 percent bonus depreciation as explained in number 1 above.

Passenger van. If the van has a GVWR of greater than 6,000 pounds and seats more than nine people behind the driver’s seat, tax law defines it as a passenger van, not an SUV, and it qualifies for full Section 179 expensing of up to $1,040,000 and 100 percent bonus depreciation.

Confusing right? Let us help you sort all of this out!

Buy a Depreciation-Limited New or Used Car

If you or your corporation buys and places in service a new or used passenger vehicle such as a car (or a pickup, an SUV, or a van with a GVWR of 6,000 pounds or less) on or before December 31, 2020, then you or your corporation may claim up to $8,000 in bonus depreciation.3

The TCJA increased the luxury passenger vehicle depreciation limits and also indexed them for inflation. The 2020 limits are:

$10,100 for the first taxable year in the recovery period;
$16,100 for the second taxable year in the recovery period;
$9,700 for the third taxable year in the recovery period;
$5,760 for each succeeding year in the taxable period.

If you have any questions about this or any other one of are articles do not hesitate to contact us!

Don’t forget to drive your new vehicle for at least one business mile on or before December 31, 2020, to ensure it meets the “placed in service” requirement.