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TCJA Sets New Rules for Luxury Vehicle Depreciation

December 20, 2018
TCJA Sets New Rules for Luxury Vehicle Depreciation

If you drive, deliver goods, or otherwise rely on a vehicle or fleet to generate business, the Tax Cuts and Jobs Act (TCJA) has some good news.


Under the new law, the amount you can deduct for vehicle depreciation increased more than 60% for first-year automobiles!


Property Depreciation 101


The government does a respectable job of creating avenues for small businesses to write off the costs of doing business. One area where Uncle Sam continues to shine is in vehicle depreciation. Since the value of a vehicle decreases with each year of use, the IRS allows businesses to write off a portion of the costs of the vehicle.


Traditionally, small businesses could simplify their deductions by utilizing the federal mileage reimbursement, which was 54.5 cents per mile for 2018. However, since the overhaul of the country's tax law, the TCJA made vehicle depreciation rates too good to pass up.


What Constitutes a "Luxury Vehicle"?


The IRS doesn't define "luxury" in the way most Americans do. For tax purposes, "a luxury vehicle is four-wheeled, used mostly on public roads and must have an unloaded gross weight of 6,000 pounds or less. For "luxury" to apply, the automobile just has to be purchased new. The rules for depreciation are straightforward. Per the IRS, you must:



  • - own the property, and


  • - use it in a "business or income-producing activity,"



and the property must:



  • - have a useful life, and


  • - last (or expect to last) more than a year in service



What are the TCJA's Maximum Depreciation Rates?


For vehicles put into service after Dec. 31, 2017, the TCJA retained the previous $8,000 limit for bonus depreciation in the first year, plus an additional $10,000 depreciation on first-year vehicles. There IRS has provided the following per-year depreciation rates:



  • - from $11,160 to $18,000 for the first year


  • - from $5,100 to $16,000 for the second year,


  • - from $3,050 to $9,600 for the third year, and


  • - $1,875 to $5,760 for each later taxable year in the recovery period.



To learn more about what your business can write off, contact Foster Financial CPA today or give us a call at (602) 833-3260 to schedule a consultation.