Buying a new automobile is a massive financial commitment. Your new car is likely to be used for both personal and professional reasons. IRS guidelines on writing off the cost of business-related automobile purchases take this into account. Consider this while shopping for a work vehicle, especially if you’re an independent contractor or small company owner. When you buy a new automobile, you may be able to save money on your tax payment.
Section 179 deductions for vehicle expenses
Taxpayers can write off the cost of certain types of property as a business expense under Section 179 of the IRS code. Its goal was to encourage company owners to purchase equipment and make personal investments in their companies. However, the IRS often requires capitalizing and depreciating the cost of the property to be used – more on that below.
Is it feasible to deduct the cost of a car for business?
It’s not possible to write off the whole cost of a new car. A portion of the expense is, nevertheless, deductible from your taxable income. Vehicle sales tax and other car-related costs can also be deducted to lessen your tax burden.
To be eligible under Section 179, your car must fulfill the following criteria, whether it is brand new or previously owned:
- As a result, it must not exceed 6,000 pounds (excluding ambulances, hearses, and other heavy vehicles)
- It must be financed and put to use before December 31 and put to use for business at least half the time.
- You can only deduct the portion of the car’s cost that is used for commercial purposes. You may deduct 70% of the cost of your automobile if you drive it to work 70% of the time.
Section 179 deduction restrictions
An item’s cost can be deducted in whole, subject to a set maximum, under Section 179. There is a $1,040.000 cap in place for the year 2021. Bonus depreciation kicks in once the Section 179 expenditure limit is met. The Section 179 maximum for automobiles is $10,100 – $18,100 with bonus depreciation.