Depreciating a Vehicle - Knowing your luxury auto limits

Looking to purchase a new business vehicle? Choose carefully. The limit on the amount that can be deducted for depreciation varies by type of vehicle. Under §280F, passenger automobiles, trucks and vans are subject to special annual depreciation limits, known as luxury auto limits. These limits begin to apply for cars costing at least $19,000.

If a vehicle is four-wheeled, used mostly on public roads and has an unloaded gross vehicle weight of no more than 6,000 pounds, the car is considered a passenger automobile. Similar characteristics apply to vehicles that are considered light trucks and vans. However, for a vehicle to be considered a light truck or van, it must have been built on a truck chassis and have a loaded gross vehicle weight of no more than 6,000 pounds. The limits will vary, depending on whether the vehicle purchased is technically a passenger car, light truck or van or over the 6,000-pound threshold. Generally speaking, due to the luxury auto depreciation limits that apply only to passenger vehicles, larger vehicles, such as light trucks and vans, will provide greater tax savings.

Generally, vehicles rated under 6,000 pounds will also qualify for a 50% bonus depreciation and an additional §179 deduction. The special 50% bonus depreciation applies to all new passenger cars that are used over 50% for business use. This bonus depreciation limit increases the regular depreciation limit by $8,000. The §179 deduction applies to all passenger automobiles as well, but §280F limits will apply to this type of deduction.

Any vehicle that is rated over 6,000 pounds is not subject to the regular or bonus depreciation limits. In addition, for any vehicle over the 6,000-pound rating, the §179 expense deduction is $25,000. There are certain restrictions that may apply, however. Be sure to consult with one of our tax professionals about the make and model of your vehicle to accurately determine your depreciation limit.

Please note: If the vehicle is not used 100% for business, the depreciation limit will be reduced by multiplying the luxury auto limit by the percent of business use. The depreciation limit does not apply to any vehicle costing less than $19,000.