Don't Miss Out on 100% Vehicle Depreciation Deduction in 2022

bonus depreciation business deduction business vehicle business vehicle depreciation sec 179 tax deduction vehicle expenses Jul 15, 2022

If you use a vehicle for business, there is a special deduction that allows you to deduct 100% of the cost of the vehicle in the year it was placed in service. But, get on this fast because the full benefit starts going away after 2022.

Section 179 allows businesses to immediately expense the entire purchase price of qualifying vehicles purchased or leased during the tax year up to $1,080,000. Additionally, bonus depreciation can be taken on top of Section 179 if applicable. Bonus depreciation can be taken over this dollar limit if applicable in order to fully depreciate the cost of the vehicle.

This deduction applies if your business purchases a vehicle over 6,000 pounds that is used more that 50% for business. If your vehicle doesn't meet these requirements, you can still deduct a portion of the cost of the vehicle as a business expense. The amount you can deduct depends on how much you use the vehicle for business. You may also still qualify for bonus depreciation of lighter vehicles.

If you use your vehicle for both business and personal purposes, you can only deduct the portion of the expenses that are related to business. For example, if you use your vehicle 50% for business and 50% for personal, you can only deduct 50% of the operating expenses.

The Sec. 179 deduction will no longer be available for 100% of the purchase price of a business vehicle after December 31, 2022. First-year bonus depreciation deduction will decrease as follows after 2022:

  • 80% for property placed in service during 2023
  • 60% for property placed in service during 2024
  • 40% for property placed in service during 2025
  • 20% for property placed in service during 2026

If you're thinking of purchasing a vehicle for business use, it may make sense to do so before the end of 2022 to take advantage of the 100% deduction. Just keep in mind that even if you get to fully deduct the vehicle under the business, you must still make the necessary payments and pay for maintenance. A tax deduction is not a credit, so the cost of the vehicle reduces your taxable income, but not a dollar for dollar reduction in taxes owed.

The business vehicle deduction can save you a lot of money at tax time, so it's important to keep track of your mileage and expenses throughout the year. For more information on these deductions and how they may apply to your business, please consult with your accountant or tax advisor.