How to Legally Take a Deduction for Your Car in 2022 & Beyond | USTaxAid

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How to Legally Take a Deduction for Your Car in 2022 & Beyond

Written by Diane Kennedy, CPA on March 6, 2022

In this article, we’re going to look at the different ways that you can take a deduction for your business vehicle or the percentage of your car use that is related to your business.

You can also take a deduction for the use of your vehicle for your real estate investment activities. That is calculated the same way you would if you were taking a deduction for your business. 

First, Calculate Your Business Use

In order to take any form of business deduction for your car, you’ll have to calculate your percentage of business use.

Tracking how many business miles you had for the car and how many personal miles you had? This is quite likely the single most difficult part of the deduction.

But it’s important if you want to take (and keep) a deduction for your vehicle. 

Is It Better to Take the Business Mileage Method or the Percentage of Use?

Let’s start with the simplest, the mileage method. For 2021, the mileage rate is 56 cents per mile. For 2022, the mileage rate is 58.5 cents per mile.

There are a few rules you need to follow when you use the mileage method: 

You must not operate five or more cars at the same time, as in a fleet operation,

You must not have claimed a depreciation deduction for the car using any method other than straight-line,

You must not have claimed a Section 179 deduction on the car,

You must not have claimed the special depreciation allowance on the car, and

You must not have claimed actual expenses after 1997 for a car you lease.

The other option is to use the actual expense method. In this case, you’ll get to take a deduction for the business percentage times the actual operating expenses for the vehicle. This includes gas, oil, repairs, tires, insurance, registration, license and depreciation. If you are leasing a vehicle, you can also use the business percentage times the lease costs. If you are financing, you can also take the business percentage times the interest cost.

Note that if you take the actual expense deduction, you cannot go back to the mileage method in another year.

Section 179 & Bonus Depreciation

Section 179 and bonus depreciation allow you to take an immediate expense for certain vehicle that you purchase. These methods are only available if you are using the actual expense method and own the car. 

The Section 179 allows for a $25,000 deduction for vehicles that are over 6,000 GVWR. Bonus depreciation can kick in after that to give you a full 100% deduction.

What Vehicles Qualify for the Section 179 Deduction in 2022?

The list of vehicles that can get a Section 179 tax write-off include:

• Heavy SUV’s, Pickups, and Vans that are more than 50% business-use and exceed 6000 lbs. gross vehicle weight can qualify for at least a partial Section 179 deduction, plus bonus depreciation.
• Obvious “work” vehicles that have no potential for personal use typically qualify.
• Delivery type vehicles, like a classic cargo van or box truck with no passenger seating, can qualify.
• Specialty “singular-use” vehicles generally qualify – a hearse, an ambulance, etc.

2022 Heavy Vehicles

To meet the weight criteria, the manufacturer’s gross vehicle weight rating (GVWR) must exceed 6,000 lbs. 

Here’s a partial list of SUVs and Trucks that might qualify* for a tax deduction in 2022:

Audi Q7
BMW X5, X6
Buick Enclave
Cadillac XT5, XT6, Escalade
Chevrolet Silverado, Suburban, Tahoe, Traverse
Chrysler Pacifica
Dodge Durango, Grand Caravan
Ford Expedition, Explorer, F-150 and larger
GMC Acadia, Sierra, Yukon
Honda Pilot 4WD, Odyssey
Infiniti QX80, QX56
Jeep Grand Cherokee
Land Rover Range Rover, Discovery
Lexus GX460, LX570
Lincoln MKT AWD, Navigator
Mercedes-Benz G550, GLS, GLE, Metris, Sprinter
Nissan Armada, NV 1500, NVP 3500, Titan
Porsche Cayenne
Tesla Model X
Toyota 4Runner, Landcruiser, Sequoia, Tundra

Both new and used vehicles can qualify for Section 179 and bonus depreciation. You can finance a vehicle and still take the deduction.

Business Use and Recapture Danger

The numbers above assume 100% business use. If your business use percentage is less, than the amount you can deduct is less.

It is also important to realize that passenger automobiles and most other vehicles are “listed property” for which special rules apply. If the vehicle is not used more than 50 percent for business purposes, no section 179 or bonus depreciation deduction is allowed. Only straight-line depreciation can be taken. If a taxpayer’s business use drops to 50 percent or less at any time after bonus, section 179, or MACRS depreciation has been taken, the depreciation or expensing deductions in excess of straight-line will be subject to recapture. This amount will be taxed as ordinary income, subject to self-employment tax.

There is a lot to consider when you take an auto deduction. The more you know, the less you pay!

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