PAYSTUBMAKR.COM tells you about: The Depreciation of vehicles under the new tax law.
Small businesses can find some good news for the companies and its owners about taxation. One particular change is the depreciation breaks for the first year of the vehicle that they use for their business. Reading our article, you can learn how to take advantage of the new (TCJA)
Topic Number 510 – Business Use of Car
The depreciation allowances for passenger vehicles that are used over 50% of the business is much more significant with the new tax act. It includes new and used vehicles that were put into use after the 12/31/17.
The change made by TCJA is significantly high and have no time limit. It will affect the 2018 new or used business service vehicles.
Heavy pickup truck
A Brief Overview of Depreciation
The maximum allowances are:
- For the first year $ 10,000 or US$ 18,000 when you claim a first-year bonus depreciation
- For the second year $16,000
- For the third year $9,600
- For the fourth years, $5760 and in the coming years until the vehicle is completely depreciated. In the case that you use the vehicle less than 100% the allowance will be cut according to the proportion that it is used in the business. Inflation index will be updated starting 2019 until the vehicle rich the zero value.
You can claim the first year additional bonus for the depreciation of for the first year passenger vehicles new or used. The car should be put in service 9/28/17 and 12/31/26. The new law increases the auto depreciation by $8,000 which bring it all to $18,000. The auto must be a new purchase for you or your business. This bonus will be ended at the end of 2026 unless the Congress will give it more time. With the old law, only new vehicles were allowed the bonus. Before the tax reform, the allowance for passenger autos was much smaller. $11,160 for a new car and additional first-year bonus of $3,160. A used car, had only $5,100, for the second year $3,050 and the third year $3,050, and $1,875 for the fourth year.
Looking at Vehicle Depreciation and Expensing under the New Tax Law by Iowa State Univesity
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Little higher limits were applied to the lighter trucks and vans. The new TCJA show us a significant improvement from the old one. A first-year 100% bonus is permeated for the Heavy SUVs pickups and Vans that are used more than 50% at your business.
One more good news is the rule on used assets for your business. The new TCJA allows unlimited 100% first-year bonus for qualifying new and used asset put in service starting at 9/28/17 and 12/31/22. It must be new to you or your business. The old tax law had only 50% with no bonus to a used asset.
The new law makes an investment in new or used assets much easier the old law. It comes to be that the saving taxes are paying your new equipment. You must use the heavy vehicles more than 50% in favor of your business.
Heavy SUVs, pickups, and vans are considered for taxation as transportation and not as passenger vehicles, as transportation that is entitled to 100% first-year bonus if you use them more than 50% If you use the asset less than 50% you will need to calculate depreciation in ss years time.
Heavy vehicle definition
The 100% first-year depreciation bonus is valid on SUV Pickup with gross weight GVWR is more than 6,000 pounds. Some examples are Chevy Tahoe Ford Explorer and Grand Cherokee. The GVWR is found in the drivers’ door. Check it yourself to avoid problems.
According to the new tax reform for 2018, if you buy a $60,000 Heavy SUV in 2018 and you use it 100% for your business, you can deduct the $60,000 for the 2018 tax filing, as a depreciation break. In the case that you use the vehicle only 60% for the business, your bonus for the first year will be 60% of $60,000 equal to $36,000
In the case of a used $45,000 heavy Pickup, SUV, or van, you can deduct the $45,000 using the 100% first-year bonus depreciation break.
In the case that you use the used vehicle only 60% for the business, your bonus for the first year will be 60% of $45,000 equal to $27,000
There will be no more employee deduction for unreimbursed vehicle expenses
There is a change in the law for employees that use their car for the business of their employer. The old law permitted to claim an itemized deduction for the not reimbursed business-usage vehicle expenses with 2%-of-adjusted-gross-income (AGI) threshold for writing off itemized expenses.
The new tax law for 2018-2025 does not permit the write off for miscellaneous itemized expenses as it was in the old law. People that use their vehicles as part of their job should negotiate an adjustment of salary or get a tax free reimbursement for the participation of the vehicle in the company activity
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The new TCJA changed the way businesses should manage their investment in transportation vehicles. It promotes the investment on heavy pickups and vans by giving the option of first-year bonus businesses can easily invest in new or used vehicles to replace old fleets or increase the fleets they have.
Leasing or purchase
Remember that leasing a vehicle is not purchasing, tax on leasing is a different story. When you leas the vehicle you can not depreciate it, you can deduct the percentage of use in the business If you pay a yearly amount of $4000 and your use rate is 60% which are $2400 that you can deduct from your yearly tax return
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