Vehicle Depreciation

As you know, unfavorable depreciation rules apply to most passenger autos and light trucks used in business. For a vehicle acquired in 2016, depreciation deductions are generally limited to the following amounts:

If the business use percentage is less than 100% (which is often the case), your deductions are even smaller. You must multiply the above numbers by the business percentage.

Exception for Certain Trucks and Vans. Certain trucks and vans qualify for much more favorable deprecation rules. The key here is finding a vehicle that is not considered a “passenger auto” under the tax rules. According to IRS regulations, a truck or van is not a passenger auto when it has a Gross Vehicle Weight (GVWR—the manufacturer’s maximum weight rating when loaded) above 6,000 pounds. In making this determination, the GVWR rating and the manufacturer’s classification as a car, truck, or van are the controlling factors.

On the second page, we’ve listed many of the 2017 vehicle models that qualify for these special tax benefits based on their GVWs at the time we checked them. As you can see, it’s a surprisingly long list. In addition, there may be some we have missed (new and retooled models are coming out all the time). Thus, always verify the GVW and manufacturer’s classification for yourself before making a buying decision. The GVW can normally be found on a label attached to the inside edge of the driver’s side door.

Businesses can claim substantial deductions for heavy (over 6,000 pounds loaded gross vehicle weight) trucks and vans used primarily (over 50% of the time) in the business. This is particularly true now that Congress extended favorable Section 179 and bonus depreciation provisions. For example, assuming certain requirements are met, a taxpayer may be able to fully expense the cost of a $65,000 heavy truck placed in service during 2016 and used 100% for business. (If the truck is a sport utility vehicle, the maximum first-year depreciation deduction would generally be $49,000.) The maximum first-year depreciation deduction for a new $65,000 passenger auto with gross vehicle weight of 6,000 pounds or less placed in service during 2016 and used 100% for business will only be $11,160 ($11,560 for a light truck or van), assuming bonus depreciation is claimed. These amounts fall to $3,160 ($3,560 for a light truck or van) if bonus depreciation is not available or you elect out.

To claim these deductions, you must establish through contemporaneous records (such as a mileage log) that you use the vehicle over 50% of the time for business. If your business usage later falls below 51%, a portion of the deductions previously claimed will need to be recaptured and reported as ordinary income in that year.

As you can see, the deductions for purchasing heavy trucks and vans for use primarily in your business can be substantial. Attached is a list of vehicles qualifying for larger deductions.

Appendix 1

Sample Client Letter on Deductions for Heavy Trucks and Vans (Continued)

1    GVWR not yet posted for 2017 model. The weights listed are for the 2016 model, which will likely be similar for the 2017 model.