Business Vehicle Tax Breaks

Skippidy Dippity Do!  Not much better than the feel of climbing into and driving a new car or truck.  Oh, the smells, the brand-new dash, the shiny hood, the clear windshield.  Everything works perfectly!  Wow!  Those dang car dealers have it so easy.  Once you sit in a new vehicle, something goes off in your brain finding 15,000 different ways to justify purchasing it right there on the spot.

Well, let me add another reason to the list.  Tax breaks. 

The annual depreciation caps for passenger autos rises a bit in 2021.  For vehicles used 100% for business purposes, if bonus depreciation is claimed, the first-year ceiling is $18,200 for new and used cars.  The second- and third-year caps are $16,400 and $9,800.  After that…$5,860.  If no bonus depreciation is taken, the first-year cap is $10,200.  But wait!  It gets even better.  The one simple reason why you want to purchase a heavy SUV or large truck.  You get to write off the entire purchase price in one year!  Now one of the keys for all this has to do with “bonus depreciation” being taken.  That allows you to deduct the depreciation in all cases regardless of whether you have taxable income or not.  That is huge!

But, what about leasing instead of buying?  It is beneficial, but the computation process gets kinda weird… you get to deduct the actual lease payments made each year.  But, if the leased car is worth more than $51,000, then you have to reduce that deduction by an amount found in some IRS tables.  It depends on what the value of the car is.  Here is an example.  You lease a car worth $75,000 for 3 years.  You must reduce the deduction by $8 a month in 2021, $18 a month the next year and $26 a month in 2023.  Not much, just more of a hassle.  The net result is that you get to deduct most of the lease payments you make.

I have a lot of Real Estate Brokers/Agents as clients and/or friends who prefer to lease.  They get high-end vehicles to “impress” their house prospects with, not to mention saturating the prospects with that new car smell, and just turn them in for new vehicles every 2 or 3 years.  For them it’s just a cost of doing business.  If that “new car feel and smell” helps sell just one large extra house a year, it covers the entire amount of lease payments made in one year.

Did I say there’s a catch?  The secret is 100% business use.  You better be able to prove that.  The IRS demands it.  If you get audited by the IRS and do not have mileage logs, indicating business purpose and use, they will disallow ALL of your vehicle deductions.  So, keep a log.  At least every time you fill up, write down the miles driven and general usage on that tank of gas, such as… “Drove out to 7 different client locations multiple times” or “Showed 10 different houses.”  Get the picture?  Do NOT skimp on taking the time to keep a mileage log that backs up your business use.  ALSO, it means you MUST have another vehicle that you use for personal purposes, like going to buy necessities, go to church, etc.

Have you heard?  Psalms 20:4 says, “May he grant you your heart’s desire and fulfill all your plans.”

Kelly Bullis is a Certified Public Accountant in Carson City.  Contact him at 882-4459.  On the web at BullisAndCo.com  Also on Facebook.