There is a lot of debate about the overall impact of the new tax law that went into effect Jan 1, 2018. Business owners are touting it as a huge victory, while wage-earners are worried about some of the implications. One thing is certain. If you are a purchase a vehicle for business, you are going to win under the new plan.
It doesn’t matter if you are in the business of construction, sales, package delivery, or if you are independently contracted with a peer-to-peer taxi service, the new tax law is good news for you.
The new law allows for unprecedented deductions to be taken at a much faster rate than in previous tax law environments. The new law applies to both new and used vehicles and includes passenger vehicles as well as heavier SUV’s, trucks, and vans alike s well.
Any vehicle acquired and put to use after 12/31/17 and used over 50% of the time for business is eligible for deductions. The new first-year bonus depreciation makes the first year even sweeter with options for much greater deductions in the first year. It is logical to assume that the law is intended to encourage businesses to buy vehicles, as the deductions alone could mean the difference between profit and loss for many businesses.
Under the new tax law, maximum allowances for passenger vehicles are $10,000 for Year 1 ($18,000 if you claim first-year bonus depreciation), $16,000 for Year 2, $9,600 for Year 3 and $5,760 for Year 4 and future years until the vehicle is fully depreciated.
Vehicles that are used less than 100% for business are eligible for the same deductions proportional to the percentage of business use (as long as business use exceeds 50%). Used vehicles are also eligible for the depreciation benefits, as long as they are new to your business and not previously used by you or your business entity.
Any vehicle over 6000 lbs. Gross Vehicle Weight Rating (GVWR) is considered a heavy vehicle. This applies to most full-size SUV’s, vans, and pickup trucks, along with heavier trucks. The new tax law gets really aggressive with these heavier vehicles. The first-year bonus depreciation allows you to depreciate 100% of the purchase price of these heavier vehicles in the first year. This is huge for business owners.
As with anything that is really good, there is also a down-side. If you use your personal vehicle for business, you will no longer be able to take personal deductions. The standard deductions allowed by the IRS in 2017 were 53.5 cents per mile. This will be a huge loss for wage earners who rely on their vehicles to get work done.
The bottom line is this: These new tax laws are geared toward helping businesses keep more of the profits they earn and theoretically pass some of the savings on down to employees. Whatever sting may be felt from the elimination of personal deductions will hopefully be made up with the potential for employers to pay more in wages. We will have to wait and see how it plays out.