Can I write off the purchase of a vehicle for tax purposes?

Question

I'm considering purchasing a vehicle to do showings as an agent.  Can that purchase be deducted? Is it better to create a depreciation schedule for it?  CPA friends, help!

Ashish Acharya · Answer

Yes, absolutely. This question is simple but has many rules. Please talk to you CPA.

Cars are subject to more restrictive tax depreciation rules than those that apply to other depreciable assets. Under so-called “luxury auto” rules, depreciation deductions are artificially “capped.”

Because of the restrictions for cars, you may be better off from a tax timing perspective if you replace your business car with a heavy sport utility vehicle (SUV) instead of another car. That's because the caps on annual depreciation and expensing deductions for passenger automobiles don't apply to trucks or vans (and that includes SUVs) that are rated at more than 6,000 pounds gross (loaded) vehicle weight.

• SUV’s with an UNLOADED gross vehicle weight greater than 6,000 pounds but less than 14,000 pounds are allowed to claim a Section 179 expense of up to $26,200.
• Trucks with an interior bed-length of six feet or more are NOT subject to this $26,200 limit.
• Trucks over 6,000 pounds UNLOADED gross vehicle weight with beds shorter than six feet are considered SUVs and subject to the $26,200 limit.
• Trucks, vans, and SUVs with a LOADED gross vehicle weight of over 6,000 pounds are NOT subject to the Section 280F limits. These assets qualify for 100% bonus depreciation as well as regular depreciation and section 179 expense rules. This deduction will be prorated for business use percentage and if business use goes below 50% there will be recapture of the deduction taken.

Natalie Kolodij · Answer

Technical answer was already fully provided for you above.

In my experience most agents drive so many miles that taking the standard 58ish cents a mile as the deduction vs. "writting off" the vehicle via actual expenses tends to be a better write off overall. If it's a $20k vehicle and you drive 20,000 miles annually for business in 2 years you've already gotten to the same level of "write off" and years 3+ are gravy. (you still get to deduct gas, maintance) but typically the mileage can be better. But also- talk with your specific CPA because depending on your situation doing a big deduction in one year may be a better option

Natalie Kolodij · Answer

Depends where you are/types of homes. Especailly stacking with renovation bonus depreciation and bonus depreciation from a cost seg it's definitely possible.

Work with a REI specialized tax pro to discuss the big picture and strategy.

Natalie Kolodij · Answer

You can't combine them.

You get to deduct EITHER a standard rate per mile (about 58 cents it changes year to year)

OR

Actual expenses

-depreciation

-gas

-insurance , ect

But for Actual expenses as well you need to track your mileage because unless you have another vehicle and this one is ONLY used for the business- you can only deduct a percentage of those expesnes. You need to know how many miles driven for personal vs. business use to figure that ratio out. The way to get to $0 tax as an agent is to own rentals that generate losses on paper. Not by spending money on thigns like a vehicle which are actual cash outflows. You don't want to just spend money, to have less money, to pay less tax.

Basit Siddiqi · Answer

@Amy Raye RogersYou already got a good response.The only thing I will add is that you need to keep track of the mileage driven for the vehicle on an annual basis.I would recommend downloading an app that you can have on your phone which can track your business / personal usage.Best of luck

Natalie Kolodij · Answer

This is a Missouri program

Laura Marks · Answer

As of October 1st, 2021 you'll be able to also get the tax back from gas purchased. It's personally not worth it to me but may be for you to save receipts for a few hundred $$.

Wesley I. · Answer

@Amy Raye Rogers

Yes, you can! Either by mileage or actual.

And you are what they call a REP so you can deduct your rental losses. It looks like youre in great spot and already got great advise.

Charles D. · Answer

@Amy Raye Rogers

Mileage is an alternative to claiming actual expenses over the life of the vehicle, you can’t take both. Mileage is supposed to be a proxy for all the costs that are involved in owning a car for business. The purchase cost is deducted via depreciation over time (not all in one year), which would be part of these actual expenses, which would be subject to the limitations already described in other responses.

Hope it helps

Amy Raye Rogers · Answer

@Natalie Kolodij This is a perfect answer for me! We did acquire 5 SFR rentals this year as well. Do you think those depreciation schedules will eliminate my gross income tax burden from 100k in commissions?  I'll be more diligent at tracking my mileage next year.  Thank you!

Can I write off the purchase of a vehicle for tax purposes?

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