Understanding Business Vehicle Expenses

When it comes to deducting expenses for vehicles used in your business, you have two primary methods to choose from:

1. Cents-per-mile method: For 2024, the IRS allows a standard mileage rate of 67 cents per business mile, up from 65.5 cents in 2023. This rate is designed to cover all vehicle-related expenses, including gas, maintenance, repairs, tires, and insurance. Importantly, a depreciation allowance is built into this rate, simplifying the process for many business owners.
2. Actual expense method: This method requires more detailed tracking but can lead to higher deductions. You’ll need to account for all vehicle-related costs, including a specific calculation for depreciation. This method is especially beneficial if your vehicle incurs higher than average costs or is used predominantly for business.

Depreciating Passenger Autos

If your business uses passenger autos—defined as vehicles with a gross vehicle weight rating (GVWR) of 6,000 pounds or less—understanding depreciation rules is critical. These rules vary depending on the vehicle’s usage and cost:

• General Depreciation: For vehicles used more than 50% for business, depreciation is calculated annually until the vehicle is fully depreciated. This typically spans six years.
• Luxury Auto Limits: Higher-end vehicles face “luxury” auto depreciation limits. For example, in 2024, you can claim up to $20,400 if you opt for bonus depreciation (or $12,400 without it) for the first year. These limits apply only to vehicles costing $70,000 or more if claiming first-year bonus depreciation.

Depreciating Heavy Vehicles

For heavier vehicles—those with a GVWR above 6,000 pounds—favorable depreciation rules apply:

• Section 179 Deductions: Many small and medium-sized businesses can deduct most or all of the business-use portion of their heavy vehicle’s cost in the first year they’re placed in service. For 2024, the inflation-adjusted maximum is $1.22 million, with specific limits for heavy SUVs set at $30,500.
• Bonus Depreciation: Eligible for first-year bonus depreciation, heavy vehicles placed in service in 2024 can be deducted at 60% of their cost if used for business.

Strategic Deduction Planning

To maximize your deductions, it’s advisable to leverage both the Section 179 deduction and first-year bonus depreciation where possible. For instance, if a business owner purchases a heavy SUV for $80,000 and uses it entirely for business, they could deduct $30,500 under the Section 179 rule and $29,700 as bonus depreciation in 2024, totaling $60,200 in deductions.

Partner with a Business Accountant

The intricate rules surrounding business vehicle depreciation make partnering with an experienced business accountant essential. They can guide you through the tax implications, help optimize your deductions, and ensure compliance with current tax laws.

If you’re navigating the complexities of vehicle depreciation or have other tax-related questions, contact Burton McCumber & Longoria. Our team is here to provide the expertise and support you need to manage your business finances effectively.