Buy a Truck or SUV Before Year End, Get a Tax Break

Did you know that you can buy a large truck, SUV or other vehicle for your business, and be able to write off 100% of the purchase price as a tax deduction, according to IRS rules? If you’re reading this before December 31st, there’s still time to take advantage of this rule for the 2020 tax year. 

Small businesses can deduct the full purchase price of a business vehicle if it has a weight rating of over 6,000 pounds. Weight is based on an industry figure called Gross Vehicle Weight Rating (GVWR). 

If the vehicle qualifies for a full deduction, you do not have to depreciate it (i.e., spread out the deduction) over a period of years. You get the value of the full deduction all in one year — a considerable tax savings.

This rule used to be called the Hummer Loophole, which Congress technically eliminated years ago. However, the Tax Cuts and Jobs Act of 2017 brought back a version of the Hummer Loophole starting in 2018. To take advantage of the 100% deduction, you have to apply the rules about Section 179 expensing, together with Section 168 Bonus Depreciation rules, to get to the 100% deductibility. 

Criteria to Qualify

To take advantage of the deduction for the 2020 tax year, there are three main criteria:

Buy before December 31, 2020:  The vehicle must be purchased and placed into service during 2020, i.e., no later than December 31, 2020. 
GVWR rating of over 6,000 pounds: A business vehicle such as a large pickup truck, cargo van or large SUV,  having a GVWR of over 6,000, may qualify for the 100% deduction. In North America this weight rating must be labeled on the inside of the driver door, near the latch. Various option packages can affect a model’s GVWR so make sure to check the label of the actual vehicle you are buying. See the chart below for a partial list of qualifying vehicles based on weight.
Business purpose:  If you plan to use the vehicle partially for personal purposes, it must be used at least 50% for business.  However, if it is for partial personal use, you can only deduct the percentage used for business. Multiply the purchase price by the percent of business use (51% to 100%). 

What About Light Trucks and Cars?

Business vehicles rated 6,000 pounds or below still get a write-off. However, the deduction for the 2020 tax year for lighter vehicles is limited to the first $18,100. 

Any portion of the purchase price over and above $18,100 must be depreciated over a period of years per IRS depreciation rules.

What’s this Tax Break Worth?

Saying that you can deduct the full amount does not mean you deduct the purchase price amount dollar for dollar from your income tax liability. Rather, you need to know your tax bracket. You multiply the amount of the purchase price by your marginal rate to find the value of the tax break. 

Example: if the purchase price of a heavy truck is $95,000, and you are in the 24% tax bracket, to get a back-of-the-envelope figure for the value of your write-off, you multiply 95,000 x .24 = 22,800. Your deduction could reduce your taxes by $22,800 for 2020.  Not bad!

On top of the Section 179 and Bonus Depreciation deductions, remember that you can also deduct mileage costs for operating the vehicle. See 2020 IRS mileage rates.

Also, see: Top Small Business Tax Deductions.

Like all tax rules, there are a number of exceptions and exclusions, so check with your tax advisor about your situation and any limitations.

List of Heavy Trucks and SUVs That Qualify

Audi

Audi Q7, SQ7
Audi Q8, SQ8

BMW

BMW X5 M
BMW X5 XDrive35I
BMW X6 M
BMW X6 XDrive35I
BMW X7 (all models)

Bentley

Bentley Bentayga

Buick

Buick Enclave 2WD
Buick Enclave 4WD

Cadillac

Cadillac Escalade 2WD
Cadillac Escalade AWD
Cadillac XT5
Cadillac XT6

Chevrolet

Colorado 2.8L AWD
Silverado C1500
Silverado C2500
Silverado C3500
Silverado K1500
Silverado K2500
Silverado K3500
Suburban C1500
Suburban K1500
Blazer
Tahoe 2WD LS
Tahoe 4WD LS
Tahoe Hybrid
Traverse 2WD
Traverse 4WD

Chrysler

Chrysler Pacifica
Chrysler Pacifica Hybrid

Dodge

Dodge Durango 2WD
Dodge Durango 4WD
Dodge Grand Caravan

Ford

Ford Expedition 2WD
Ford Expedition 4WD
Ford Explorer 2WD
Ford Explorer 4WD
Ford F-150 and larger 2WD
Ford F-150 and larger 4WD
Ford Flex AWD

GMC

GMC Acadia 2WD
GMC Acadia 4WD
GMC Sierra C1500
GMC Sierra C2500 HD
GMC Sierra C3500 HD
GMC Sierra C3500 HD
GMC Sierra K1500
GMC Sierra K2500 HD
GMC Sierra K3500 HD
GMC Yukon 2WD
GMC Yukon 4WD
GMC Yukon Hybrid
GMC Yukon XL C1500
GMC Yukon XL K1500

Honda

Pilot 4WD
Honda Odyssey
Honda Ridgline AWD

Infiniti

Infiniti QX80
Infiniti QX56

Jeep

Jeep Grand Cherokee
Jeep Gladiator Rubicon

Land Rover

Range Rover 4WD
Range Rover SPT
Discovery
Defender

Lexus

Lexus GX460
Lexus LX570

Lincoln

Lincoln MKT AWD
Lincoln Navigator
Lincoln Aviator

Mercedes Benz

Mercedes-Benz G550
Mercedes-Benz GLS
Mercedes-Benz GLE
Mercedes-Benz Metris & Sprinter

Nissan

Nissan Armada 2WD
Nissan Armada 4WD
Nissan NV 1500 S V6
Nissan NVP 3500 S V6
Nissan Titan 2WD S

Porsche

Porsche Cayenne

Ram

Ram Promaster 1500-3500
Ram 1500 and up

Subaru

Subaru Ascent

Tesla

Tesla Model X

Toyota

Toyota 4Runner 2WD LTD
Toyota 4Runner 4WD LTD
Toyota Landcruiser
Toyota Sequoia 2WD LTD
Toyota Sequoia 4WD LTD
Toyota Tundra 2WD
Toyota Tundra 4WD

This article, “Buy a Truck or SUV Before Year End, Get a Tax Break” was first published on Small Business Trends

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