As you may have read from my Net Worth Rule For Car Buying post, I’m looking into buying the latest Range Rover Sport HSE to replace Moose, a 15 year old Land Rover Discovery II. The 2017 Range Rover Sport can be had for roughly $73,500 MSRP, an exorbitant amount of money for a vehicle.
SUVs are an anathema to eco friendly San Francisco. But I’ve long argued that if you don’t completely destroy your car before buying a new car, you are still ADDING pollution to the world. I like SUVs because they ride high so I can see what’s going on in traffic. They can go through snowstorms with ease, a necessity for when I go up to Tahoe in winter. Furthermore, I’d rather be in a larger vehicle vs. a smaller vehicle during accidents.
SUVs have become more fuel efficient thankfully. The new Range Rover Sport V6 engine produces 345 hp at 17 city / 23 highway. Just 10 years ago such an SUV would be a V8 and run around 12 city / 17 highway mpg with only 185 hp. But this is not a post to defend purchasing a large vehicle. This post’s purpose is to discuss the aspect of purchasing a vehicle for your business in order to deduct the expense!
RULES FOR SUV / TRUCK PURCHASE FOR A BUSINESS
Let me state up front that I’m not an accountant, but I do have an accountant, and I am a tax law enthusiast who strives to minimize his tax liability after disgustingly paying well over $1 million in Federal income taxes over the past 15 years.
The first thing I did to understand the process of writing off a vehicle as a business expense was to go to the Range Rover dealer of course!
I asked the salesman what he sees most businesses doing when it comes to purchasing a vehicle and he told me, “Small businesses tend to purchase outright or finance and large businesses tend to lease.” The idea is that large businesses who use a lot of vehicles don’t want to bother with inventory management if they are not a car business.
The salesman showed me a special “Tax Depreciation Comparison” pamphlet (photo) that just “flies off our shelves” to highlight how much a $61,000 Range Rover Sport in 2011 (was cheaper back then) could be depreciated vs. a $61,000 luxury car which is not over 6,000 pounds. As you can see from the picture, 95% of the Range Rover Sport can be depreciated over four years if 100% used for business vs. only 34% for a similarly priced car. The reason is based on Section 168(k) and Section 179 of the Internal Revenue Code for vehicles over 6,000 pounds (includes max load).
I thanked the salesman for the information and proceeded to send my $2,000 a year tax accountant an inquiry about whether this example indeed holds true based on the latest tax laws for small businesses. Here’s his response:
You can only write-off 100% if the vehicle is used 100% for business AND you buy it brand new from the dealer (no private party used vehicle). It has to be brand new. The amount on the example factors in a brand new SUV over 6,000 lbs.
To summarize:
1) 100% business use, if not the ratio used for business is deductible e.g. 65% for business use, 65% depreciation/deduction schedule. Keep a mileage log! It’s generally impossible to have 100% business use, hence the more conservative 95% depreciation used in the above example.
2) Must be a brand new SUV over 6,000 lbs.
The IRS allows up to $25K up front depreciation (100%) for SUV over 6,000 lbs PLUS 50% Bonus Depreciation for NEW vehicles which will get close to that figure. The vehicle must be driven over 50% of the miles for business purposes and you must reduce the $25K by the personal use percentage.
Not bad! We’ve got a winner here if you’d like to purchase a new SUV. The IRS allows employees and self-employed individuals to use a standard mileage rate for expensing vehicles under the 6,000 pound limit, which for 2013 business driving is 56.5 cents per mile. If you can’t or don’t want to deduct based on mileage, you can deduct based on cost of operating the vehicle e.g. tires, maintenance, gas. It’s one or the other.
START A BUSINESS, TAKE ADVANTAGE OF TAX LAWS
So there you have it folks. The reason why Land Rover has tons of Tax Depreciation pamphlets that are “flying off the shelves” is because plenty of businesses are purchasing 6,000 lbs vehicles under their business entity and writing off the expense over time due to what’s allowable by tax law.
It’s important to note the IRS screens small businesses based on expense and tax ratios for auditing. If your business only brings in $30,000 gross revenue a year, then buying a $75,000 SUV amortized over four years is probably going to raise red flags. But if you have a $500,000 gross revenue a year business, then writing off $10,000 – $45,000 a year in expenses doesn’t seem out of line. The IRS is on the look out for small businesses that are created simply to dump lifestyle expenses into the entity to reduce income taxes.
As always, talk to your accountant before conducting any tax changes. Given I prefer SUVs over cars, it absolutely makes sense for me to buy a brand new vehicle under my business if it comes time to buy a new car. I’ll be getting roughly a 30% discount from purchase price after considering tax deductions.
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Update: 1/8/2017 I want to highlight a great comment who is in the commercial equipment leasing / financing industry and provides reasons for leasing instead of purchasing.
If you want to avoid the “depreciation recapture”, and don’t want to run the vehicle into the ground, you can lease the vehicle instead. You still can expense the rental payments under your business, and at the end of the lease, you simply return it. This way you:
a) Did not spend $50K upfront to acquire it (conservation of capital)
b) Have written off the rental payments 100% (maximized tax write offs)
c) Don’t take a loss on selling the vehicle (prevents loss on selling a depreciated asset)
d) Aren’t stuck with an obsolete vehicle (curbs obsolescence)AND
c) If the vehicle was truly a revenue generating asset for you business (ie, you use the flashy car to gain more clients and it actually gets you more clients, or you use the truck to transport goods that you obtain and sell at a profit), then you have generated positive cash flow and have completely written off the cost of using and acquiring the vehicle!
Remember, invest in appreciating assets, lease depreciating assets!
Now imagine if you also did this with your computers, software, servers, etc.
A LIST OF VEHICLES FOR 2016 THAT HAVE A GROSS WEIGHT (GW) OVER 6,000 LBS
Here’s a list of 2016-2017 model cars with a gross weight over 6,000 lbs. Usually each vehicle will have its weight on the side door. If you’re unsure, just ask the dealer.
Audi Q7 3.0L TDI
BMW X5 XDRIVE35I
BMW X6 XDRIVE35I
Buick ENCLAVE
Cadillac ESCALADE AWD
Chevrolet Truck AVALANCHE 4WD
Chevrolet Truck SILVERADO
Chevrolet Truck SUBURBAN
Chevrolet Truck TAHOE 4WD
Chevrolet Truck TRAVERSE 4WD
Dodge Truck DURANGO 4WD
Ford Truck EXPEDITION 4WD
Ford Truck EXPLORER 4WD
Ford Truck F-150 4WD
Ford Truck FLEX AWD
GMC ACADIA 4WD
GMC SIERRA
GMC YUKON 4WD
GMC YUKON XL
Infiniti QX56 4WD
Jeep GRAND CHEROKEE
Land Rover RANGE ROVER 4WD
Land Rover RANGE ROVER SPT
Land Rover LR4
Lexus GX460
Lexus LX570
Lincoln MKT AWD
Mercedes Benz G550
Mercedes Benz GL500
Nissan ARMADA 4WD
Nissan NV 1500 S V6
Nissan NVP 3500 S V6
Nissan TITAN 2WD S
Porsche CAYENNE
Toyota 4RUNNER 4WD
Toyota LANDCRUISER
Toyota SEQUOIA 4WD LTD
Toyota TUNDRA 4WD
Volkswagen TOUAREG HYBRID
Of course, there are new vehicles with new modifications all the time. Double check with your car sales person to make sure the vehicle you are buying is over 6,000 lbs!
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After you claim the $25000 section 179 depreciation deduction, you have to then use the actual expenses method of deducting automobile expenses for all future years you have that vehicle. You can’t use follow sec 179 with the standard mileage method. It’s still important to keep track of your miles so that you can calculate personal vs. business use of the vehicle.
Thanks for pointing out this clarification. With a 6,000 pound vehicle, gas expense matches right up there with the 53 cents per mile expense.
Thoughts on depreciating a used vehicle that’s over 6,000 lbs? Does it not work because the depreciation is hard to calculate for used so the government just nixes it together and just goes the mileage or cost of use method?
Great article!!!! Now not to complicate things, but…..I thought I also read that vehicle can be gifted to a family member after two years of service, or fully depreciated. Which should avoid the depreciation recap.
You need to re-read Section 179. As of 2015 in addition to the 6,000 lb. GVWR, there are new constraints now. For example if a pickup, the bed must be at least 6 feet in length. If an SUV, it must be able to seat a minimum of 9 passengers behind the driver’s seat.
In other words it must actually be a commercial duty vehicle. I know this because I bought a half-ton pickup for my new business and discovered after the fact I had to have a pickup with at least a 6 foot bed. I went back and traded my brand new pickup that got almost 19 mpg for another one (losing $4k in the process) that gets a bit over 12 mpg. Perverse!!
Rick the bed length and passenger restrictions only impact whether your deduction is capped at $25,000. Bigger, longer no cap.
Sport Utility and Certain Other Vehicles
You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. However, the $25,000 LIMIT does not apply to any vehicle:
Designed to seat more than nine passengers behind the driver’s seat,
Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or
That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.
Rick, was it really worth it? Why lose $4000 and then double your gasoline use (environmental destruction) just to get a write-off?
Buy an SUV or Minivan in black and drive for Uber/Lyft on your way to work and on the way home, ergo, you are taking advantage of the busiest hours for those services, using the vehicle 100% for business and able to deduct 100% of the cost today under Section 179
At my old job at a mortuary, my boss bought his son a pick-up truck through the business. The business paid the payments and the insurance for his kid! =/
Bank of Mom and Dad is strong!
I find this rather funny!
It reminds me of when I lived in NorCal back in the eighties. Someone tried to sell me helicopter because of all the tax advantages. Then there was the rabbit farm guy…….
After hearing about these schemes, a very wise old investor (I think he was from Philly) told me: “Buy things because you need them or really want them. Never buy things, just for the tax benefits.”
Sam, if you really like this vehicle, and you are in a position to take advantage of tax benefits; more power to you!
This is the perfect example of how good intentioned government policy causes economic distortion. The 6,000 pound weight limit was intended to help businesses such as contractors, plumbers, etc., whom actually have a legitimate need for large utility vehicles.
The best is when you want or need something, and you do some research to discover that the government wants you to have that something and will give you a discount incentive.
As a landlord in Tahoe, I need an all-wheel drive vehicle to go through the snow and bring my gear to fix my place up.
Take what ever tax breaks you can justify is my philosophy!
As far as SUVs & 4-wheel drive vehicles are concerned; I have never owned one in my entire life.
When I was living in NorCal, I took frequent ski trips. I have lived in Chicago now for close to 30 years. We do get snow here, and I still have never had a reason own one.
Chicago is the worst during the winter! Sub zero and no mountains to ski. Of course you don’t need a 4-wheel drive. You guys just stay inside for 5 months a year. Holla!
Jimbo….. Come on! Get real here! There are places far colder and snowier than Chicago.
In fact, most of the winter I’m walking around in tennis shoes. The sidewalks are shoveled, and the streets are ploughed.
Two thirds of the United States has real winter weather….. Hello? It’s an American experience. You don’t see Santa Claus next to palm trees. Put on a coat and go outside!
Ever been to Hawaii during the winter? Santa is there hanging out on the beach next to palm trees. Maybe I’ll snap a picture just for you when I’m there in a month :)
I knew I had made it into the middle class when I had a second vehicle. That being said, everything I learned being poor tells me that there’s a great lot of nonsense built into this tax law and business philosophy.
I always have a used truck sitting in my driveway, and I hardly drive it. I have a little Honda that I drive when I’m not hauling ladders and equipment. It’s front wheel drive, and does fine in the New England snow. It gets 40+ mpg. Cars are for moving people, and trucks are for moving equipment. Period.
The tax incentive is perverse, and this is a great example why. I can’t depreciate my $1500 truck. Heck, I probably bought it from somone who already depreciated it 100%. On the other hand, it is a true asset, at $1500. I owe no debt on it. It certainly produces more value (versus renting a vehicle when I need one) than it costs. It gets in the high 20mpg range (which I do NOT think is impressive) which is not terrible FOR A TRUCK.
I think you did a lot of justifying the purchase in the introduction, but you have to know, at some level, that you’re driving a gas guzzler, and that you don’t need to. And, that it cost an extravagant amount of money that you wouldn’t have spent if the taxpayers weren’t subsidizing your “business”. I hope you support the idea of reforming this ridiculous tax code, and eliminating these sort of deductions. “Depreciation” Ha. What a boondoggle.
Hi Jeff,
In order for us to build wealth, it’s important for us to understand the tax code. This is one of the many tax codes that the middle class and savvy business owners can use.
You should also read:
Income Limits Before Tax Deductions Start Phasing Out
Definition Of A Middle Class Income
Yeah, I just read your article, and I think you’ve got a big pair to try and call those incomes “middle class”. Some of us are scraping and kicking our way INTO the middle class. We’re not all doctors and lawyers, and I don’t cut diamonds either.
Some of your arguments come from a really Reaganomic direction. Extend the $1000 tax credit to upper income families? You think the purpose of that incentive is to get poorer families to have more kids? It’s not a strong enough incentive to decide to have kids or not. Homo Economicus might decide that $1000 swings it, but out here in the emotional nonrational world of Homo Sapiens, that $1000 is a “gift” to keep poor parents from sinking. It sounds great at a Young Republicans meeting, but it has very little to do with the real world, and hence, actual economics.
I run my Tahoe through my company, the way I kind of look at it is Obama is paying for half. Funny that you want the HSE Sport. I actually went into the local Range Rover dealer about 6 weeks ago looking to spec. out and purchase the larger version Autobiography (its been a good year), and I had the single most disgusting experience at a car dealer ever with the way I was treated. I think the truck is awesome, but because of my experience…I’ll be purchasing the new Yukon Denali or Escalade when they come out in a couple months. I think they realized they might have effed up when they saw the significantly more expensive car I got into and left NEVER to return. I even wrote the owner a personal email because if I had employees like this I would want to know…no response…my experience Range Rover Customer service blows, car looks great though, I hope your experience is better!
I used this as a moment though to reflect back on my own business and how we are truly a customer service business even though we manufacture a product.
The RR folks are very nice here. Stealth wealth means you never know who is a multi-millionaire cash buyer even if s/he looks 25 years old.
The Autobiography is sweet for the big boy. About $165,000 I think. A Denali or Escalade is good value in comparison!
I know…I’ve learned first hand you never really know who the people with the real bucks actually are, most of the time they are not the guys driving super nice cars. I was shocked at my customer service experience, and I’m as thick skinned as they come. I’m sure it is not indicative of RR service around the world and that is why I figured the owner might want to know. The Denali will be fine and I can be a little more stealthy, but the interior on the AB is just stunning. Good luck with your purchase, I think the Sport model will sell like hot cakes they did a great job with the redesign.
Here’s an awesome race video on Fox of the new Sport. Starts at the 6:25 mark.
@nbsdmp, pmfji but your story about the awful lack of courtesy and service (and mentioning Autobiography) reminded me of a great story. In the 1970s, one of the most successful rock acts of the time was Three Dog Night. In his autobiography, singer Chuck Negron tells the story about walking into a Rolls-Royce dealer in Beverly Hills, dressed very casually and half the age of the average RR buyer. He was slighted by the sales staff, who were clearly talking about him and snickering over his appearance…except for one young man who came over, introduced himself, and offered to be of assistance. Negron bought a Silver Shadow on the spot, and came back later that week with friends to buy five more (a total of six!) from the young man.
Of course, Negron kept it real, and lost it all to poor choices, divorces, drugs, etc. I’m sorry, but I just couldn’t help but cr@p on my own story!:-)
I certainly don’t blame you for wanting to take advantage of this loophole, but this tax law sure gives wrong incentives to purchase 6,000+ lbs monstrosities by people that don’t need them. I can see a farmer or a construction worker that needs an F150 but buying a gas guzzling BMW or Land Rover instead of a more sensible vehicle is a sad side effect of this law.
Is it a loop hole when I got to drive through the snow during winter in order to do post reviews on snow resorts for my site and bring my plumbing gear to fix my rental property?
So long as more economical car owners don’t purchase new, and detonated their previous car before purchasing a new second hand car, I’m all for it. But to buy a new car, or new used car without incinerating their old car just means one has added to congestion and pollution.
What have you done?
Yes, I understand your view expressed above and also in the article where you state “I’ve long argued that if you don’t completely destroy your car before buying a new car, you are still ADDING pollution to the world.” However, I do not agree with this statement simply because I would not buy a new car. I would buy an efficient used car, so I am not “adding” pollution to the world by creating demand for a new vehicle as you seem to imply. My old car already exists, my new “used” car already exists too. By buying a small efficient car on a used market I’m helping create a demand for those vehicles, which raises their resale value and hopefully creates more demand for small efficient NEW cars since people who buy new cars usually do look at that when deciding between different models. That’s how the market should operate without government subsidies anyway.
The point I was trying to make was that this tax rule provides an incentive for people to buy totally unnecessary 6,000+ lbs trucks even if they don’t really need them for business. You certainly don’t need one to get to the mountains.
How much do we need of anything? Why can’t we focus on the tax rules instead of how greatly green we are? We then start talking about fitness, LEED certified houses, carbon footprint, meat eating etc. Can you imagine being a meat eating, child bearing, Jeep Wrangler driving, 8%+ body fat walking, non LEED living American who wears leather shoes and shuns organic? The world will surely end quicker this way.
Why did you buy and soup up your Jeep Wrangler anyway?
“Why can’t we focus on the tax rules instead of how greatly green we are?”
That’s exactly what I was trying to focus on – how this tax rule gives people an incentive to buy a ridiculous 6,000+ lbs truck which otherwise they might have not considered.
“Why did you buy and soup up your Jeep Wrangler anyway?”
Young and stupid, impulse buy after grad school fueled by a fat sign on bonus. Did not know yet what new car depreciation was and gas was at 99 cents per gallon back then. After using that build-up Wrangler for commuting 97% of the time instead of climbing the off-road trails in the mountains, realized that it was not a smart choice. Sold to a guy who actually still uses it for those purposes.
1. Clearly the 6,000 pound rule was not written for you to drive your RR in Tahoe Snow (was there in any in the last 18 months? – doubt it).
2. You say a $77,000 car with roughly $55k in year one deductions is “not a problem”, but at what point is it a problem? – Ferrari makes a new SUV that costs $777,000, and the owner takes a $500k deduction in year one, is that a problem?
3. Regarding your thoughts about “eco”. – You are grossly out of your league here. Every gallon (just one) of gasoline produces roughly 50 pounds of CO2 (just CO2, not including PM 2.5, PM 5.0, and, surely does not count all that other increased pollutants that are found in NV gasoline (which I am sure you drive to to save 25 cents a gallon vs CA gas in Tahoe). What this means is that using this SUV vs another car that could easily do the job costs the environment a 1,000’s of pounds of pollution a year. – So, indeed, it would be “better” for the environment and all it’s inhabitants if you purchased a car that
Do the math: You consume 750 gallons a year in RR had you purchased a car that uses only 630 gallons (20% more efficient MPG) you could blow your car up every year. – And this is completely ignoring the environmental costs associated with building a heavier car (6,000+ pounds).
Can you share what means of transportation you use and whether you destroyed your previous cars before buying a new one to help save the environment?
Thx
WOW! Fail chemistry much? And math and physics? Do you honestly think that a gallon of gasoline (which weighs roughly 8.3 lbs) can magically multiply itself six times over into 50 lbs of CO2? Just leave. Never come back. People like you make this planet a much nastier place.
I’ll buy these numbers, but it’s not as simple as you think
https://www.fueleconomy.gov/feg/contentIncludes/co2_inc.htm
It seems impossible that a gallon of gasoline, which weighs about 6.3 pounds, could produce 20 pounds of carbon dioxide (CO2) when burned. However, most of the weight of the CO2 doesn’t come from the gasoline itself, but the oxygen in the air.
I believe when it comes to CO2 pollution calculus… its not only burning fuel that produces CO2 pounds are taken into equasion, but produces CO2 while manufacturing that fuel. Basically they count – crude oil pumping, transportation, burning in your car…if simplyfied.
This may very wrll produce 60lbs of CO2 for 6 gallons of fuel.0
So are you saying you drive a Prius or only take public transportation or a bike to work? Speak up.
My car averages 40 mpg, so not as good as a Prius but good enough for me. Yes, I try to bike as much as I can as well. Not sure how it’s relevant to the point I was making – see above – but since you asked…
It’s a bailout for Detroit. Automakers make $10K+ per SUV/Truck. They’re lucky to make $1,000 on a compact car. So the 6,000 pound minimum is a way to make sure that each unit sold puts the most in an automaker’s pocket at the expense of the IRS/government.
Corporate welfare disguised as a well-intentioned gift to small business…only in America!
Dang, we better negotiate down by $9,900 then! Leave $100 for the good service and glass of champagne they serve on signing.
Sam,
San Francisco parking is terrible. How about Zipcar?
Not sure how terrible my garage is which allows me to park my vehicle with ease every day. There’s plenty of parking spots in SF and valet as well. The only people who complain about parking are those who don’t want to feed the meter or tip a valet!
I’d like to add two points to our discussion (both good):
1. There is certainly a cultural/class gap between us. I as a middle class (actually, upper middle class Midwesterner), would never let a valet drive my $75,000 automobile.
2. I think this is a reasonable/sensible vehicle for you (although, maybe not for the reasons you have given). You seem to keep your vehicles for well over a decade, so the average annual cost is really quite low. I do think an extended warranty is a good thing to look at.
After seeing Ferris Buehler’s Day Off, I think it’s be nice to let the valet go for a spin once in a while no?
It’s too bad that you can’t buy a lighter car. I don’t think we’ll buy a 6,000+ lbs car just for the incentive. It goes against everything we believe in.
Maybe the Honda Pilot… Everything on this list is so huge though.
Just so long as you destroy your old car before buying a new second hand car, you are helping. If not, you’re only adding to congestion and pollution.
Please elaborate on everything you believe in! I’d love to hear it.
My goal is to have as large of a carbon footprint as humanly possible (even bigger than Al Gore’s, but that is a stretch goal). I figure the faster we burn all of these fossil fuels that quicker their will be an economic incentive to actually go out and invent then next technology to replace carbon based fuels. No more fighting over the middle east, all kinds of new businesses, life will be good. I’m doing my part and others should consider it too!
Heh heh, that’s actually pretty good.
We don’t like the whole live large lifestyle. We don’t need a huge vehicle here in Portland. Most people like biking and their Subarus just fine.
It’s wasteful to be driving such a huge car when you don’t need it. Don’t be a car glutton. :)
It is all about balance I suppose…I actually “need” my 6,000lb truck to tow my 6,000lb boat. I spent about 300 hours on various waterways this summer exploring what nature has to offer. I’ve got customers in your area, and it is absolutely gorgeous…I love visiting out there. It does crack me up though how many Subarus there are out there, you never see them around here…they seem to have a cult following.
So many?Because they are good in the snow,Reliable.That’s been my family’s experience. They will not tow much weight though.
I’ve always been curious about this myself. Section 179 can be used for more than just vehicles over 6000 pounds, the rules are just slightly different. Companies who buy large machinery for example can use the terms in that section to get tax breaks. I can see why tax attorneys make good money. There are so many rules and regulations to keep track of.
Sam, do you think it’s still a net positive to depreciate a new vehicle when compared to purchasing used, perhaps at 25% to 50% of the cost? Presumably the gas mileage may be significantly worse in model that is several years older, increasing the TCO. But, then, insurance may be much lower, too. Could be a bit of a wash.
Hard to say, hence my “Would you go for the$73,000 new Range Rover Sport that is deductible, or the lighter BMW X3 2012 model for $38,500 but not deductible except for usage and maintenance costs?” question at the end.
I’m thinking maybe better to buy new because in 3-4 years you can sell the new vehicle for the same price as your actual cost, meaning you drove a free vehicle for 3-4 years.
Again, as with the rental property, there are some additional tax considerations to selling that car in a couple years, especially if you have written off most of that vehicle through accelerated depreciation. :)
Again, a party pooper. Haha.
You know you’re not going to be able to sell the new vehicle for the same price as your actual cost! But you really want to “drive a free vehicle for 3-4 years”, lease it and expense the payments. It can be any kind vehicle btw, just make sure you go through a commercial equipment finance company and make it an FMV lease. If you do a $1 buyout or loan, then it can only be written off under Section 179.
By no means is this my expertise, but I’ve always vaguely that you have the option to either expense the vehicle 100% in the first year or amortize over (I think) up to five years. Also, I don’t think that you can take on a new vehicle more than every other year. I seem to recall the rules changing on this in the mid-2000’s as well.
It seems logical to me that larger businesses would be oriented around reducing the headache of more permanent inventory by simply writing off the (relatively lower OOP) lease cost. A self-employed person has different motivations.
I think you are right about inventory management and headache if many vehicles are being used for bigger business.
No giant deduction for a work mini-van like Caravan? I don’t need a big SUV that won’t fit in my garage with another car. My wife would kick me out!
Life is too short to drive a minivan!
A minivan is the smallest vehicle with the most space, if that makes sense. Many can haul a 4×8 piece of plywood with a flat deck that many giant SUVs cannot do. Not to mention I don’t owe 25k in taxes each year to warrant such a large purchase. If the 179 deduction worked for smaller cars I’d go out and buy one today!
Really? You drool over Indian SUV’s? No gentile English vehicle anymore. All you really need is a Subaru at the most to get to Tahoe. Tata!
What’s wrong with Indians?
From the same company that brought to the world a $2k Tata Nano that catches on fire. To each their own…
Share with us your vehicle of preference.
Racist much?
I think his point was that the Indian carmaker Tata builds cheap cars that catch on fire. He’s not being racist.
Tax deductions or not, if you don’t need a truck or SUV, why would you buy one? You say it’s for the snow but here in Canada we have snow 5 months of the year, and although some prefer the 4x4s, there are tons of compact and sub-compact cars that do just fine.
How do I fit my 25 bags of groceries to help feed the children? Hard to do in a compact car.
You need to put chains on a non 4X4 going up to Tahoe btw. What car do you drive?
Maybe because some of us want one? Love your holier than thou attitude though.
The real question is why would anybody live in Canada where it snows 5 months a year. That sounds like torture hell.
“The real question is why would anybody live in Canada where it snows 5 months a year. That sounds like torture hell.”
Maybe because they want to ;)
What do any of us really need besides food, clothing, and shelter? Where do you live in Canada?
One of my partners is set on buying a new Autobiography before the end of the year. I think its a little crazy because he just bought a new Cayenne last year. I will probably inherit it as a winter beater though, so I’m not going to complain. But the tax benefits are great if you own a business. I don’t think you should let it dictate the buying decision though. I’d buy something you would enjoy. The tax benefits are just an added plus.
Wow, you guys are rolling in dough! What do you guys do and do you need another partner?
I like Range Rovers ever since I was a kid. The tax deduction is definitely a plus.
It took them long enough to convince them that I should have equity! Two years of negotiations, which isn’t too bad considering I’ve worked with them for 4 years. It only became effective this year. It was/is a strange deal the way we structured it with a profits interest agreement, good for me with no cash out my pocket. You would probably have to replace me as CFO, everyone else is more sales / marketing oriented.
What we used to do is completely different than what we do now a days which why I have equity. They used to distribute trend merchandise to retail nationwide. We still do a little bit of that. But the majority of our sales come from products we have manufactured to spec and then we distribute to retail. We put together a lot of licensing deals. Our most successful product is on shelves in every Target, Kroger, Wal-mart and Safeway.
I am firm believer you should buy a vehicle you will enjoy regardless of the tax benefits. New cars still bother me even with the tax incentive. Some people look at me crazy when they find out I spent 50k on a used car.
I’ll join as the Head Of Sales and whip em boys into shape!
Not sure I see anything wrong with what you want to do. Obviously, you can afford the car outright probably based on your net worth rule. I don’t think this post would apply to 90% of people…but if you can then why not take advantage of the tax incentives? Even if you can only ultimately save 20% off the purchase price.
I’d ignore all of the useless comments about “Sure you can do it, but is it morally or socially right?” That’s not for you to worry about, quite frankly, when it comes to the IRS. The IRS is going to get their money regardless.
I guess the real question is whether one needs such an exuberant vehicle. We, as Americans, or humans in general, are excessive in everything we do. Do we really need anything more than a $100,000 house in an unknown town? Do we really need to eat eat once or twice a week when we could live simply and farm our own stuff? The price of the vehicle is irrelevant, to me, if you can afford it. It’s no more wasteful than the things we do already!
There’s actually lots of small business owners in America. Check out these facts:
* 23 million small businesses in America account for 54% of all U.S. sales.
* Small businesses provide 55% of all jobs and 66% of all net new jobs since the 1970s.
* The 600,000 plus franchised small businesses in the U.S. account for 40% of all retail sales and provide jobs for some 8 million people.
* The small business sector in America occupies 30-50% of all commercial space, an estimated 20-34 billion square feet.
Lots of people can start a business, especially with sites like Legal Zoom making it so easy. In fact, I encourage everyone to start a business. Then, nobody would ever vote for raising more taxes!
No doubt that S.B. has a huge impact in the U.S., but… we’re still talking about how many people would a $75,000 SUV write off actually apply to. As you said, you’d have to gross quite a bit in order to even make it look legit to the IRS, and then you’d actually have to have a specific business need for that SUV.
I looked it up and there are 27 million in total small businesses (employer + non employer). So lets round that up to 30 milllion since its likely there are multiple owners in small businesses. So, my point is that this post would apply to only 9.5% of Americans (since owners are the only ones that are going to be able to write this off, right?)
Sure 9.5% is a lot, but then you have to account for how many of those businesses actually gross the amount necessary to effectively write it off, and then you have to filter even more for those that would actually have a business need for a $75k car.
Take a look at the list of vehicles in my post that qualify as over 6,000 lbs. There’s plenty to choose from that cost under $40,000.
Also, 10% is much large if you compare to the percent of working population.
Don’t underestimate small business. We drive the economy!
Hey Sam,
This post hits home so hardcore. I LOVE the RRS and have seriously considered getting one for my business but the social pressure is too much. For example, I drive an older small Ford Ranger. Like you I have rental properties and I deal with contractors all the time. I would have a very difficult time negotiating lower prices on contractor estimates or even dealing with tenants driving one of those around. What would they say if I rolled up in a NEW RRS? This would be a disaster at least in how I operate my business. That’s why I haven’t moved forward with the purchase. It’s the perception that the RRS induces.
I have considered alternative 6000# options as others above have mentioned including the Ford Explorer (my runner up). The best option, in my opinion, after looking at all others is the Toyota Highlander. The new one is very nice, reliable and goes virtually unnoticed. The perfect stealth wealth vehicle.
Hi Michael,
Good point on rolling up too fancy! I had a subordinate fresh out of school roll up in a $50,000 SUV. Since he was already rich, perhaps the bonus pool could go elsewhere instead hmmmm.
The new Explorer is nice too. But as you say, gotta look a little broke for better negotiations!
S
Actually…. With the depreciation tax benefits, the cash flow concept I was thinking about last week really works out well with this purchase. The only problem is that this concept is much more complex than the “10% of income rule”, and most folks should check with their CPA before signing any doted lines.
I am a small business person, so I have an ok grasp about these things, but again, always check with your accountant.
Something which is really pragmatic for many people is to start a sideline business (moonlighting) outside of normal employment. The benefits are many (even beyond taxes).
Starting a side business or incorporating is definitely an eye opening experience. Not easy to generate lots of life sustaining revenue, but a great experience nonetheless.
I would say don’t do it. It’s new and shiny, but will it make you that much happier? Even with the tax write off, what about your 10% rule. If you did 10% of your passive income, that would be about 10k for a car-a highly depreciating asset, as opposed to 70k less the write off of 30k, so still 40k consumed, gone. In a few years, it will be an old Range Rover and the latest model will be so much cooler. What’s the future value of 30-40k invested at 5-10% over 30 years? I know it’s a hard decision when it’s bright and shiny.
It’s become a safety issue right now. All the electronics in Moose are dying and it’s too expensive to fix based on the current value of the car. Did you not read the new and shiny Net Worth Rule For Car Buying?
The problem is, there will always be something better and newer. Eventually we’ve got to buy something to replace what’s dying.
Yes, I did read it. It sounds like a way for you to justify new and shiny. You will be as safe with a 3 year old certified used car. You will be happy for the first year or two and then it fades. I know from experience as I bought a new and shiny sec 179 SUV a few years ago :)
Ahh, but no 95% write off with a 3 year old CPO!
Is this the case of do as I say, not as I do??
What did you end up getting?
So far as I have seen to take a section 179 deduction the equipment doesn’t have to be new. Just new to you. I take section 179 on used vehicles all the time, however they are of the class that can be fully deducted and are not subject to the 25k limit.
“Is this the case of do as I say, not as I do??”
Yes, pretty much, haha. I got a new Sequoia Limited 4WD with XM, Nav, etc. to take to the snow. Tax write-off was awesome. It’s now been 3 years and I average 1-2 snow trips per year (yes, it’s great for that), but 95% of my use is daily driving and i’m spending about $320 a month in gas. I’m considering selling it, but don’t want the recapture tax on the write off. So I’ll probably just keep it. It would have been much more cost efficient to rent a snow car each year. As long as you are ok with the depreciating asset/consumption use of those dollars, it’s fine. Could also put a down payment on a rental condo.
Yes, you can do 179 on lighter vehicles, just not as much write-off.
Gotcha.
That vehicle is a beast! I hear you on gas. The RRSport at 24 highway ain’t bad given it’s a V6 instead of V8.
I go up to the snow at least 5x a year. The RRS is a 50% upgrade on my existing gas mileage!
Busting my chops a few months back about the Benz and at that time considering a 3 series if I recall – As I was saying then, spend some / save some, you never know when you’re time is up, might as well ride in comfort :-)
Who me? What did you end up getting?
I’m happy for anybody to get any vehicle they want. ;)
So you being a landlord and i assume that your rental income is ~30k per year make you a small business owner ? Will you be qualified to take these tax deductions with a red flag from IRS ?
Sorry, but what is the red flag?
Rental property is one thing, my business is another. Are you thinking my business is rental property?
I presume the blogging business?
I agree with the thinking! In the past, the IRS viewed anything near 100% as a red flag. You have to have some personal usage. How do you justify this vehicle for either rental properties or blogging? Your business does not need the ability to carry around large amounts of stuff. I have used gray areas of th eIRS tax code when I had income property, but I made sure I did not cross the line.
The purpose of the vehicle is transportation to visit clients and seek stories. My writing here is all about real experiences from real people. You don’t have to haul lumber to own an SUV FYI.
Love this post. I am always looking for new ways to save on my taxes with business expenses – luckily I have a really creative accountant. I know someone who deducts her dog food…that’s a true story. I don’t know if she’s been audited by the IRS – all I know is that my accountant won’t even let me deduct my gym membership.
So long as she has a dog related business, seems to make sense! Humans get to expense their client meals.
Sam, don’t do this. Such a huge waste, you won’t be any happier in a shiny new RR. I love them too, but the novelty will wear off in a few months and then you’ll be stuck with a shiny new vehicle that you’re paranoid about scratching and depreciates at the speed of light.
Find happiness elsewhere.
You’ve dashed my dreams. My life is over.
Sam,
Long time reader and first comment on your blog. We are in the same boat as you are: need to buy a new reliable vehicle as our oldest car is over 20 years old, and own a small business so can take advantage of this tax law. This post is perfectly timed so really appreciated it.
However, there are couple clarifications based on my research:
1) You can buy a used car as long as it is new to you. Probably can’t do this from a private seller so safer to buy from a car dealership. See the last section of this web page on this:
2) The 6,000 lb is Gross Vehicle Weight Rating (GVWR), which is vehicle plus max load. This is why some cross overs vehicles like the Honda Piot AWD qualifies.
Please let me know if I am wrong. Good luck on your search for a new ride!
Hi Peter,
Thanks for sharing! I like the extra point about Vehicle Weight + MAX LOAD. Good thing American weight has grown a lot over the past several decades to increase max load, in addition to stronger vehicles of course.
It’s weird language on the “used car as long as it’s new to you.” Safer to buy new, but it does seem like buying a second hand vehicle seems possible for deduction per the website, ”
Vehicles can be new or used (“new to you” is the key).
The vehicle can be financed with certain leases and loans, or bought outright.
The vehicle in question must also be used for business at least 50% of the time – and these depreciation limits are reduced by the corresponding % of personal use if the vehicle is used for business less than 100% of the time.
Remember, you can only claim Section 179 in the tax year that the vehicle is “placed in service” – meaning when the vehicle is ready and available – even if you’re not using the vehicle. Further, a vehicle first used for personal purposes doesn’t qualify in a later year if its purpose changes to business.”
Finally, leasing a 6,000 lbs+ vehicle might make the MOST sense no? You make say a $1,000 monthly payment, but you deduct $25,000 of the $75,000 cost the first year so that you could actually make money. Hmmmm. Thank you government!
Sam
Do you really “make” money? The $25,000 just lowers your taxable income. If you made $100,000, your taxable income is now $75,000. That $25,000 at a 30% tax rate, really just saved you $7500. Payments of $1000 per month means you pay $12,000 over the year. It’s still a good deal if you use that $7500 savings toward your monthly payments, but you’re not “making” money.
What is the deduction for year 2 and year 3? Is that just actual expenses?
That SUV is gorgeous and if the government is dumb enough to partially subsidize your owning it, even better!
I’m firmly in the camp that “stuff” rarely makes you happy, but I’m still a car nut, which will never change, and not a day goes by where I don’t miss my last extravagant car purchase now that it is sold and out of my life. That decision made sense financially as I work to get us wealthier, but assuredly I will be back one day, except next time with cash and a much higher net worth!
Enjoy it Sam!
Sam,
Is my math correct here? What am I missing?
Purchase SUV for $50k. Tax “savings” $15k…
Sell 3 yrs later for $35k… effective net cost $0 (excluding registration, sales tax, etc).
Yeah, depreciation recapture unfortunately.
Terrible. Hah… so it sounds like this is only useful if you plan on keeping the vehicle throughout it’s usable life.
If you want to avoid the “depreciation recapture”, and don’t want to run the vehicle into the ground, you can lease the vehicle instead. You still can expense the rental payments under your business, and at the end of the lease, you simply return it. This way you:
a) did not spend $50K upfront to acquire it (conservation of capital)
b) have written of the rental payments 100% (maximized tax write offs)
c) don’t take a loss on selling the vehicle (prevents loss on selling a depreciated asset)
d) aren’t stuck with an obsolete vehicle (curbs obsolescence)
AND
c) if the vehicle was truly a revenue generating asset for you business (ie, you use the flashy car to gain more clients and it actually gets you more clients, or you use the truck to transport goods that you obtain and sell at a profit), then you have generated positive cash flow and have completely written off the cost of using and acquiring the vehicle!
Remember, invest in appreciating assets, lease depreciating assets :)
Now imagine if you also did this with your computers, software, servers, etc…
(I’m in the commercial equipment leasing / financing industry)
Love it!! Such valuable advice K. Thanks for sharing.
Lease depreciating assets or don’t buy them in the first place indeed.
You’ll like what I ended up doing. Will discuss in future post.
If you work for a company and use your own personal car/truck can you take advantage of this? I do get reimbursed for gas at 80% and do receive some monthly compensation based on mileage. But I do use the car 90% for business and the wear and tear is adding up.
I do use the car for entertaining customers, delivering items to other businesses and traveling to multiple states for meetings/conventions.
Tried to call the IRS to get clarification and was given automated message to do my own research.
Thanks for any input.
Have the rules changed for 2014?
As I understand, you can buy a used SUV and deduct $25000, as long as it’s new to you.
Do you have to wait 5 years before you can start taking mileage as a deduction on the vehicle?
But why lease a vehicle at all? Why not buy a well maintained USED vehicle for less than 10,000 dollars and invest your would-be payments even modestly?????? Either way, you are losing money on an asset you never owned/owned.
Lease options
$500 a month = $6000 annually for the rest of your life (30 yrs) = $180,000
+ tax/title/insurance/down payment = $7000 every 3 years = $70,000
Even if you earned a modest 5% on these investments over 30 years, that’s $614,000.
Am I missing something here?
question- can we buy two vehicles under this and write them both off? my husband just bought a silverado and I want a nicer suv to drive my clients in…..
What a bunch of commies. Until you idiots start voluntarily contributing your income to Big Momma Gubmint, quit your hypocritical nagging about maximizing tax efficiency and stimulating economy (and looking good and appreciating the beautiful creation) while doing it. I’m very thankful most of you numbskulls seem to be in the midwest, northwest or California. I think we should just agree to create separate some new nations with friendly trading terms. Y’all are nuts when it comes to government, taxes and the environment. You should not have the ability to tell me and my family what to do about anything, and I would be happy to return the favor.
I love my Land Rover, by the way.
Care to share how much in federal taxes you paid in 2014?
Where did you find the list for 2016? I just left the Honda dealer and the Pilot is at 59xxlbs, just under 6000.
Thank you!
I believe this list and tax law pertains to the GVWR…
Weight calculations include curb weight, additional equipment that’s been added, the weight of cargo and the weight of passengers… everything is considered to determine if the GVWR has been exceeded. A few facts to keep in mind:
GVWR does not reflect an auto’s actual weight — it’s a limit.
Actual weight is referred to as the gross vehicle weight, or GVW, and it changes every time you put something into the auto or take something out of it, from passengers to luggage. Towing a trailer increases the GVW by the amount of weight that’s attached to the hitch, not by the entire weight of the trailer.
Let’s say your pickup truck weighs 5,000 pounds and has a GVWR of 7,000 pounds. That means you can add 2,000 pounds of people (and other cargo)
Please correct me if I am wrong.
Hey Financial samurai or others
If you decide to depreciate the vehicle over 5 years not using the 179 then can’t you write off the full amount even if it’s not 6000 lbs?
Isn’t the 179 just for maxing out first year?
Are there any limits if you wanted to deduct 100% of the vehicle as long as it’s used soley for the business?
You should add the Volvo XC90 to the list
Tesla Model X can be added to the list I believe.
As far as I can tell, it appears that the section 179 deduction applies to both used AND new vehicles so your accountant may be incorrect. I also confirmed it on the IRS page and it appears to apply to both however I am not an accountant so may be missing something, so I am definitely going to confirm with my accountant before buying this used box truck i have my eye on.
Maserati Levante
I just left a Honda Dealer, and the 2016 Pilot Elite 4WD/AWD was not over 6000lbs. The label on the door listed the GVWR at 5842lbs. Is there a specific model that is over 6000lbs?
I think it’s 6,096 lbs, you may need 8 passenger model
This article was originally written in 2013. The previous generation of Honda Pilot with AWD was heavier so GVWR was over 6,000 lbs. The latest generation of Honda Pilot since 2015 is lighter, so even with AWD it’s now under 6,000 lbs.
I actually bought the 2013 Pilot with AWD back in 2013, so was able to take advantage of this tax savings on our 2013 tax return. Love it. But our next vehicle can’t be a Pilot anymore. Probably will be Odyssey or Ridgeline with AWD, both of which has GVWR over 6,000 lbs still in 2017.
What about a certified Used Vehicle? Any tax benefits?
So can you write off 100% of the lease if the vehicle is in the 6000 lb. category and used for business? It wasn’t to clear in your post. Thanks
Hey Samurai, I’ve got a question for you. Does the IRS make any distinction or care “why” the business would need a 6000 suv for business use or is this simply a requirement to qualify for the 179 IRS deduction? I”m looking at a 65k vehicle and hoping for both the 179 deduction as well as the 25k bonus deduction for a new vehicle. Also, there seems to be much confusion about the GVW vs curb weight. Can you help me differentiate the two? I’ve seen several SUV’s listed as qualifying for the 6000 lbs weight criteria show up on the manufacturer’s website as having a curb weight less than 6000 lbs. I just don’t want to buy a massive vehicle, trying to maximize on the deductions and get stuck. Know what I mean? Thanks.
I think I’m missing something in your math. If you deduct the cost of the lease per year, you are deducting 5,000 a year in operating expenses for the lease. That comes to around $417 a month when you divide 5,000 by 12. My issue is this- we’ve shopped for a range rover sport and they are more than that a month to lease. How much are you actually paying? Are you not spending another $300 a month to lease that car? And shouldn’t you include that relevant information in your article in order to best give an accurate financial picture of the cost of leasing a Range Rover and depreciating it as a business expense? Specifically, you are spending at least an additional $300 a month (that goes as a lease payment) to drive that car and for some strange reason can’t write that $300.00 off- so you are just losing it every month, yes? Also, you make no mention of car insurance. Should that also be included in the true cost analysis?
Then, we come to my other issue with your math- I thought you wrote that you could deduct 100%. Again, it costs significantly more that $417.00 a month to lease a range rover sport, yet you are only deducting a portion of the lease payment. Are you just making up numbers to illustrate your point in an effort to be helpful since you did say that you could expense 100% of the lease payments? Have I read it wrong? The math in your article just doesn’t make sense to me. How many months are you leasing your range rover? Maybe that would also help me understand your monthly payment and deductions. And are you not expensing that initial money that you put as a down payment on the lease? Maybe you added that chart after you wrote the article and are not realizing that it shows up? And if you think about the numbers in the chart, they just don’t make sense in the reality of leasing a range rover?
In order to get the full deduction the vehicle has to be used for business. Once the vehicle is considered as part of the business it becomes a commercial vehicle. My insurance AAA will not cover commercial vehicles. Wondering what the difference in Premium cost would be to go to another company that would cover commercial vehicles?
Thanks for the info Sam. I have owned a business to 12 years. I just bought a new truck, over 6000 lbs with a 6.5 foot bed. It qualifies for the deduction/loophole. But I really don’t drive for work and have less that 1000 business miles per yer. It is the vehicle I wanted for personal reasons, but did not “need: for work, much like your range rover.
Truck was about the same price as your RR and I made a down payment from my business. My account tells me I should back that down payment out as a distribution because I don’t use it for more that 50% work. I was hoping for the write off or to at least make the payments from by business gross rather than personal net and effectively pay 30% less for the truck.
I also just found out today that my old truck, that was a company vehicle, is going to be taxed on the sale price. So it looks like part of the savings will eventually be reduce by taxes. My old company truck I got a steal on for $35K and it is still worth $18K 9 years later. My accountant says I will have to pay an estimated $4500 in taxes on the sale because it was fully depreciated. This seems like total BS, I have to pay taxes on something I already paid for, paid taxes on and am selling for less money than I bought it for.
So given my low low business miles, do you think it is even worth it for me to try to make my new truck a company vehicle?
Good question. This is best answered by your accountant. However, I would just focus on using your truck a higher percentage for your business than personal.
Jeff, I believe you did NOT pay taxes on the $35000 (if the vehicle was a full business expense) but did have to on the selling later price of 18k. So perhaps you didn’t pay as much as what you think?