Luxury Vehicle Deductions

Tax reform now allows for 100% first year bonus depreciation for eligible vehicles. Heavy vehicles, or those weighing more than 6,000 pounds, are considered transportation equipment and qualify for 100% the first year. What are some examples of heavy vehicles? Escalades, Suburbans, and Yukons to name a few, all of which would be eligible if used 100% for business.

Another great option to boost deductions is through leasing vehicles. Lease expenses are 100% deductible if used for business with one caveat. If you lease luxury vehicles, the IRS requires you to offset some of that deduction by recognizing some income. This is the way the IRS tries not to subsidize leased luxury vehicles and they use a set of tables to determine the additional income.

If the vehicles are purchased by the LLC but used for personal matters, these amounts are included in income as fringe benefits. On top of tracking receipts for gas, maintenance and repairs, the LLC will also need to track mileage to determine the ratio of business vs. personal use. If the LLC is going to own the vehicle the amount of business use needs to be maximized for the greatest benefit by making sure personal vehicles are available and used accordingly.

Some taxpayers who like to hold onto their vehicles for a long period of time stand to benefit by using the standard mileage rate. Since there is no limit to how long you can claim this deduction for any one vehicle, holding them for the long haul may actually increase your deductions without continued spending.

While the IRS doesn’t agree that luxury vehicles are a necessary business expense, the current tax law provides several lucrative options to fully deduct the expenses for your business. Trying to figure out how to maximize your deductions while maintaining your lifestyle? Contact us to discuss your options.