If you own a business, you should know the tax rules for buying a SUV or a truck. You can and should deduct the operating expense of your vehicle if you use it for your business. But you can also deduct the cost of your SUV or truck as well.
As an SUV owner and a small business owner, this article will highlight the latest automobile tax deduction rules for 2022 and beyond. .
With the tax reform act passed at the end of 2017, buying a truck or an SUV that is over 6000 pounds has become more favorable for 2018 and beyond. Here are the tax deduction rules for SUVs and trucks.
SUV And Truck Tax Deduction Rules For A Business
Let me state up front that I’m not an accountant, but I do have an accountant. I am also a tax law enthusiast who strives to minimize his tax liability since I started working in 1999. I’ve paid well over $2 million in Federal income taxes over the past 22 years. Finally, I have been a small business owner since 2009 and have had multiple SUVs.
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! Take a look at this SUV/Truck automobile tax deduction rule for your business.
I asked the salesman what he sees most businesses doing when it comes to purchasing a vehicle. 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. Then I 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.
Automobile Tax Deduction Rule
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. Further, 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 2021 business driving is 56 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. Costs include tires, maintenance, gas and so forth. It’s one or the other.
Start A Business, Take Advantage Of Automobile Tax Deduction Rules And More
So there 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 for safety, it 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.
Further, with used vehicle prices so high due to the pandemic, buying a new car to then be able to deduct makes it even a better deal.
Tip On Avoiding Depreciation Recapture
I want to highlight a great comment from a reader who is in the commercial equipment leasing / financing industry. He 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 That Have A Gross Weight (GW) Of Over 6,000 LBS
Here’s a list of 2022 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. These vehicles should qualify for the automobile tax deduction rule. But of course, double check.
European Automobiles
Audi Q7
BMW X5, X6
RANGE ROVER SPORT, Discovery Sport, RANGE ROVER
Mercedes Benz G550, GL 500
Porsche CAYENNE
Volkswagen TOUAREG HYBRID
American Automobiles
Buick ENCLAVE
Cadillac ESCALADE AWDChevrolet Truck AVALANCHE 4W
Chevrolet Truck SILVERADO, SUBURBAN, TAHOE, TRAVERSE
Dodge Truck DURANGO 4WD
Ford Truck EXPEDITION 4WD, EXPLORER 4WD, F-150 4WD, FLEX AWD
GMC ACADIA 4WD, SIERRA, YUKON 4WD, YUKON XLGMC SIERRA
Jeep GRAND CHEROKEE
Lincoln MKT AWD
Related: How Much Of A Vehicle Expense Can You Deduct?
Japanese Automobiles
Lexus GX460
Lexus LX570
Infiniti QX56 4WD
Nissan ARMADA 4W3, NV 1500 SV6, NVP 3500 SV6, TITAN
Toyota 4RUNNER 4WD, LANDCRUISER, SEQUOIA 4WD, TUNDRA
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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About the Author
Sam worked in investing banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments. He spends most of his time playing tennis and taking care of his family.
Tax Rules For Buying A SUV Or Truck To Deduct As A Business Expense is a FS original post. Financial Samurai has been around since 2009 and is one of the largest independently-owned personal finance sites in the world. Always check with an accountant if you plan to make any big tax moves. You can sign up for my free weekly newsletter here.
I just had a client ask me if he can purchase a $210,000 SUV and write off the entire amount since it is over the 6,000 lb rule. Given the amount of personal expenses I know he runs through the company, I feel trying to push this amount through would be a red flag with a tornado siren with it, a bad idea to try to do. Your thoughts?
I am not sure I understand the saleman’s analysis on SUV over 6000lb or a car under 6000lb. I did an simulation tax run for 2019 for above 2 different cases. I see the depreciation over the 5 years are the same , both are the cost the car , $61,000 as in the example as in the article. Can anyone confirm above example is true or not?
Your article stated:
“3) Start A Business And Save On Taxes: A business is one of the best ways to shield your income from more taxes. You can either incorporate as an LLC, S-Corp, or simply be a Sole Proprietor (no incorporating necessary, just be a consultant and file a schedule C). ”
Sam, please be careful when mixing legal terms of art regarding formal business entities and IRS income Tax elections. A corporation is formed or incorporated, a Limited Liability Company is formed or organized depending on the State, not incorporated.
Corporation does not mean Company. These are two legally distinct formal business entities. Most all 50 states have statutes regarding formation of a Corporation, Limited Liability Company, Series Limited Liability Company, Partnership, Limited Partnership or Limited Liability Partnership. Formation of a formal entity is to provide segregation of business liability and shield personal assets. (absent fraud or crime)
A sole proprietorship has no segregation of assets nor does it shield personal assets from business liabilities so it is a poor choice for a business owner to make.
A Corporation in my State and most any State I know of can have liens placed upon its real and personal property and turnover proceedings against its cash accounts. For this reason, the choice of legal entity in my State Texas and most any State I do business in is a LLC or a Series LLC since they have charging order protection. In addition, a LLC or a individual Series of a Series LLC may choose (elect) how it is to be taxed. LLCs or Series of a Series LLC can choose to be taxed as a C-Corp, S-Corp, Partnership or Sole Proprietorship (no tax benefit choosing proprietorship).
Note an S-Corporation is not a choice of formal business entity it is an income tax election to the IRS. One does not form an S-Corp at their State’s SOS office. They file a income tax election to be taxed as an S-Corp. Note, only business entities that all members are US Citizens may file S-Corp election.
One needs to consult with a Asset Protection expert attorney for forming a formal entity. One needs to consult with a tax planning expert on best choice for the entity and owner/members. Do not consult with at a tax planning person on best business entity to form unless they are an attorney.
Since TCJA of 2017 the cap on C-Corp tax rate is 21%, so much lower tax rate than election of a S-Corp or Partnership pass through elections which business profits are taxed at possible higher personal tax rate.
Thanks, I was looking for a list of “Tax Cut Job Act” vehicles that qualify for bonus depreciation. 100% bonus depreciation applies to vehicles weighing 6000lbs or more loaded. So lots and lots of vehicles make the cut. Issue of purchase vs. lease is long term dependability and residual/resale values and miles per year allowed under a lease. Most business owners clock too many miles on a typical lease. Not sure what the limit is for a fleet lease? Do you know? I go with advice from car experts like Scotty Kilmer, CR, Edmunds, etc. VW, BMW, MB, Jaguar, Land Rover, and most other European brands and Renault owned Nissan, are endless money pits as they age and have miles on them. Best to lease these brands, models, and get rid of it after 36 months. Any Toyota or Honda made products (Lexus, Acura) and some Ford, GM are made to last and have a very long life no matter how old or how many miles on them.
Could we add Kia to the list of built to last? They continue to make strides in quality of product and reliability. They also back it by an industry leading 10yr/100K warranty. The Telluride has become the “Selluride” for them. Incredible value in comparison to the luxury brands.
Mr. Samurai,
I have bee searching for a comment you made on this strategy or at least I thought you did a few years back one what to do after 3 year of 179ing a vehicle? Is there a way to get the vehicle to someone else personally without paying “fair market value” after a certain period of time or something? I can swear you somehow gave it to your dad or a family member. Am I dreaming?
I heard in 2020 even a year old 6000lb vehicle eligible to tax deduction. Is it correct?
TCJA of 2017 sets out bonus depreciation for this subject. Vehicles (or equipment) do not need to be new, just new to you. For vehicles it is 6000lbs loaded, so many/most SUVs, minivan, pickups qualify.
how long must one have this car for the entire tax benefit?
For example, i bought a grand cherokee 2 years ago. I hate it and want to get rid of it.
I took the entire 25K deduction in one year.
Thanks in advance!
I’m wondering the exact same thing. I purchased a Model X a couple of years ago and wrote off the entire purchase. How long do I have to keep it without having to do recapture?
Thanks!
Planning to buy Tesla model X . Curious how did you manage to write off $100k car in 2 years ?
I heard in 2020 even a year old 6000lb vehicle eligible to tax deduction. Is it correct?
My accountant says yes. I’m looking to buy a new Tesla now. In 201, I bought a three year old Lexus LX570 and took the 25k deduction and do an annual deduction over five years.
I like it. But why a piece of crap Range Rover? Go for the much superior legendary Land Cruiser instead.
Probably just personal taste. I didn’t like the ride of the Land Cruiser or the look. I enjoyed my MB G500 though.
The Range Rover is so sweet. Never any problems too. But I do get some occasional haters for some reason. Not sure why?
Related: How To Not Have Buyer’s Remorse When Purchasing An Expensive Luxury Vehicle
Reliability. The Range Rover is known to have reliability issues and is extremely expensive to repair. The Land Cruiser is designed to last 25 years+ without issue and its track record confirms that. It’s a tank. Plus it’s much less expensive to repair. There’s a saying. Range Rovers are built to go into the jungle, the Land Cruiser is built to get you out of the jungle. Now if you just want luxury, there are better alternatives. These are purpose built vehicles.
Sounds good. Guess I’ve been lucky so far for the past 12 years with my Land Rover/Range Rovers.
Are you speaking from experience owning a Land Rover? Or just hearsay?
Why do you think the company is still around and growing so rapidly if you think the reliability is so bad?
I’ve owned several land cruisers. Will purchase a new one once the 300 is out.
Range Rovers are fine if you just want luxury and a status symbol to look fake-rugged. They have an incredible brand name which is why they still sell well. The statistics on reliability of each vehicle are readibly avail. LCs are for those who want something that will last and can handle anything thrown at it.
Got it. That makes sense why you’re so biased. I think it is important to be biased for what we buy, to prevent us from feeling bad about our purchase.
I don’t want to drive a Land Cruiser because it is too bulky, doesn’t look very good, and is old technology.
I might be biased but as I mentioned the statistics support my opinion. That said, great article. I will be using this strategy under my business.
If you could highlight the source of these statistics, instead of just saying statistics support, that would be great. I’d love to read them.
According to JD Power ratings, With 36 more problems per 100 vehicles, Land Rover is ranked 28th, below the industry average for reliability. Power ranks the Toyota fourth in reliability, above the industry average.
Good article that addresses your questions:
https://jalopnik.com/if-range-rovers-are-so-unreliable-why-do-people-still-1728727599
It’s a fun opinion piece, but I was hoping to get some reliability data etc. No worries if you can’t find anyway.
Bottom line: if you can afford a Range Rover, you can afford the car and any issues that come with it.
Just follow my 1/10th rule for car buying and you’re all set. Once a car purchase price is less than 10% of your annual gross income, the costs are not a big deal.
Most of the good reliability data comes from Consumers Reports. Unfortunately, this is subscription only. JD Power Ratings is a public source and has good info on the comparison. It confirms what I’ve already stated, Range Rover has very poor reliability in comparison to the Toyota LC.
Per current Consumers Reports – Range Rover, reliability rating 45 – “Far Below Average“. Per request for data …Land Cruiser rating 74.
A Land Cruiser is butt ugly. Further, it costs $85,000 new. To spend $85K on a butt ugly vehicle is stupid.
Further, a LC is Larger and has third row seating. You are comparing apples to oranges with the Range Rover sport.
No taste or fiscal smarts with a LC. A RR sport is way better, hence why their business is booming.
These are purpose built vehicles, not built for looks. If you’re buying for one of these for looks, you’re known as a poser.
If you have to ask the question, you won’t understand the answer. Like asking why live in Manhattan when you can live in Hoboken. People looking at Range Rovers are also looking MB, BMW, Porsche. People driving Land Cruisers clean up the kids spills after soccer practice.
Hey Sam,
I’ve been following your posts for well over a year! Big fan. Also, local SF neighbor of yours.
When it came to buy your used Range how did you expense it under business since your accountant said it has to be new?
I’d love to write off the car expense but I can’t justify buying a new range at $80k vs used one at about 60k.