How Tax Reform Affects Business Automobile Purchases and Leases

 Posted on March 07,2018 in Taxation Law

The Tax Cuts and Jobs Act of 2017 made seismic changes to tax law in the United States, and individual taxpayers, small businesses, and large corporations are working to determine how they will be affected by the updates that will be going into effect in the near future.

One aspect of the new law that many may not be aware of concerns vehicles purchased or leased by businesses. It is essential that business owners be aware of how these changes can impact the deductions they may claim.

Business Auto Deductions

When a company purchases an automobile for business use, the company will typically be able to claim tax deductions based on the depreciation of the vehicle over five years. However, these deductions and other issues involving business vehicles have been affected by the Tax Cuts and Jobs Act in several ways, including:

• Luxury Autos - The limits on the amount that can be deducted each year for depreciation for these vehicles has increased significantly. For example, the limit for the first year has increased from $3,160 to $10,000. In addition, luxury cars are also eligible for a first-year bonus depreciation increase of $8,000.
• Trucks, Vans, and Heavy SUVs - The limits for luxury autos do not apply to vehicles with a gross vehicle weight of at least 6,000 pounds. The first-year bonus depreciation percentage for these vehicles has been increased to 100 percent. Therefore, if this type of vehicle is purchased and used entirely for business purposes, the entire cost of the vehicle may be deducted on the business’s tax return.
• Leased Vehicles - Taxpayers may deduct a portion of vehicle lease payments depending on the percentage of time the vehicle is used for business purposes. If a vehicle is used only for business, then 100 percent of lease payments may be deducted. However, this deduction may be offset by income inclusion amounts for vehicles with a fair market value above a certain threshold.
• Vehicle Trade-Ins - Acquiring a vehicle by trading in another business vehicle is no longer considered a like-kind exchange, and trade-ins may now involve a taxable gain or a loss.
• Employee Vehicle Expenses - Employees who have not been reimbursed by their employers for business-related expenses to their own vehicles are no longer allowed to claim these expenses as miscellaneous itemized deductions on their own taxes.

Contact a San Jose, CA Tax Lawyer

The changes made to the tax code by the Tax Cuts and Jobs Act are numerous, and understanding how they will affect business purchases and deductions can be a complex undertaking. Therefore, if you are considering purchasing or leasing a car, truck, or other vehicle for your business, consulting with John D. Teter Law Offices can help you address these issues, minimize your tax burden, and achieve the best results for your company’s bottom line. Contact our San Jose tax attorney at 408-866-1810 to schedule a consultation. 

Sources:

https://www.forbes.com/sites/robbmandelbaum/2017/12/27/small-business-gets-more-than-a-pass-through-cut-from-gop-tax-law/#57caca092915

https://turbotax.intuit.com/tax-tips/small-business-taxes/business-use-of-vehicles/L6hi0zzzh

https://tax.thomsonreuters.com/media-resources/news-media-resources/checkpoint-news/daily-newsstand/2017-tax-reform-checkpoint-special-study-on-business-tax-changes-in-the-tax-cuts-and-jobs-act/