Maximize Tax Savings: 2024 Business Vehicle Depreciation Guide

Two Methods for Business Vehicle Deductions

You have two main choices for claiming business vehicle deductions:

• Standard Mileage Method: This method uses a set rate per mile driven for business purposes. The IRS sets the standard mileage rate annually, and it incorporates gas, maintenance, repairs, tires, and insurance. For 2024, the standard mileage rate is 67 cents per mile. You can add parking fees and tolls to the mileage deduction if you choose this method.
• Actual Expense Method: This method involves tracking all your actual vehicle-related expenses throughout the year. Depreciation calculations come into play here, requiring specific tax rules to be followed.

Generally, the actual expense method offers higher deductions than the standard mileage method, but it requires more record-keeping.

Sec. 179 Deduction and Bonus Depreciation

The Tax Cuts and Jobs Act (TCJA) introduced significant benefits for business vehicle depreciation:

• Sec. 179 Deduction: This allows you to deduct a significant portion of the vehicle’s cost in the year it’s placed in service. For 2024, the maximum Sec. 179 deduction is $1.22 million. However, limitations apply.
• Bonus Depreciation: This allows you to deduct a percentage of the remaining cost (after Sec. 179 deduction if claimed) in the first year. The bonus depreciation percentages are decreasing – for vehicles placed in service during 2024, it’s only 60%. Bonus depreciation is not subject to the same limitations as Sec. 179 deductions.

Choosing Between Sec. 179 and Bonus Depreciation

While Sec. 179 offers a potentially larger deduction in the first year, it comes with limitations. In contrast, bonus depreciation is simpler but offers a lower deduction percentage. Generally, you should maximize your Sec. 179 deduction first, then claim bonus depreciation on the remaining cost.

Depreciation for Passenger Cars

For passenger cars (SUVs and pickups under 6,000 pounds GVWR) used more than 50% for business, depreciation is spread over five years. However, “luxury auto” limitations apply to expensive vehicles, restricting the annual deduction amount. The luxury auto limits only affect vehicles exceeding a certain cost threshold depending on whether bonus depreciation is claimed.

Depreciation for Heavy Vehicles

Heavier SUVs, pickups, and vans (GVWR over 6,000 pounds) are considered “transportation equipment” for tax purposes. This classification offers more favorable depreciation options:

• Sec. 179 Deduction: For 2024, the maximum Sec. 179 deduction for qualifying heavy SUVs is $30,500. However, some heavy vehicles, like delivery vans and full-size pickup beds, are not subject to this limitation and can potentially be fully deducted in the first year.
• Bonus Depreciation: As with passenger cars, heavy vehicles qualify for bonus depreciation, but at a reduced rate of 60% for 2024.

Seeking Professional Guidance

The tax laws surrounding business vehicle depreciation are intricate and can change over time. Consulting with a tax advisor is recommended to ensure you’re following the latest regulations and maximizing your deductions.