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Steer around depreciation tax limits for vehicles

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in Small Business Tax,Small Business Tax Deduction Strategies

The IRS recently released the depreciation dollar limits for business vehicles placed in service in 2014. (IRS Revenue Procedure 2014-21)

Alert: The latest figures released by the IRS don’t include 50% bonus depreciation. This tax break expired on Dec. 31, 2013, and it’s not clear if it will be extended for 2014.

There are dollar limits for two categories of vehicles placed in service in 2014. One is for passenger autos and the second is for light trucks and vans. Generally, both categories are subject to the “luxury car” rules limiting deductions to a specific amount.

Major tax loophole: A vehicle with a gross vehicle weight rating (GVWR) over 6,000 pounds is exempt from the luxury car rules. Many larger SUVS used by business drivers meet the GVWR requirements. In this case, you’re entitled to a first-year write-off of up to $25,000 for a heavy SUV that is placed in service in 2014.

Otherwise, there’s some good news and some not-so-good news. The limits for light trucks and vans generally increased by $100 from the prior year, while the limits for passenger vehicles stayed the same. See the chart for the 2014 limits.

Note that these figures are based on 100% business use. In the real world, you probably use your business vehicle for personal driving at least some of the time. For instance, if you acquire a passenger vehicle this year and you use it 90% for business purposes, the first-year deduction is limited to $2,844 (90% of $3,160).

Tip: For leased business vehicles, the luxury car rules are reflected in “lease inclusion” tables posted on the IRS website.

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