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Maximizing Deductions for Business-Use Vehicles

April 26, 2022

Here are some tips for maximizing deductions for business vehicle costs. Optional Standard Mileage Rates If taxpayers own or lease no more than four vehicles, for business purposes can use the business standard mileage rate rather than keeping track of depreciation, gas, and repairs. Own or Lease Four or More Vehicles Generally, the IRS prohibits taxpayers from using the business standard mileage rate to compute the deductible expenses of five or more vehicles the taxpayer owns or leases and uses simultaneously, such as in a fleet operation. The standard business mileage rate for 2022 is 58.5 cents-per-mile. The business rate reflects, among other things, gasoline, depreciation, and maintenance costs each year. The standard business mileage rate for 2021 is 56, and 2020 is 57.5 cents-per-mile. Depreciation Depreciation expense changes as the year progresses. In 2022, 1st tax year: $11,200 2nd tax year: $18,000 3rd tax year: $10,800 Each succeeding year: $6,460 Businesses that use the standard mileage rate are not allowed to take actual depreciation amounts. The depreciation factor included in the business standard mileage rate is 26 cents-per-mile for 2022, unchanged from 2021. Before deciding to use standard mileage rates, you need to consider whether the actual cost method will work, even if the actual depreciation is higher than the depreciation costs included in this standard mile rates. Especially for circumstances in which Code Section 179 expensing and / or bonus depreciation is available; taking actual expenses, including actual depreciation, may be worth the effort.

Section 179 Deduction A new or used vehicle may qualify for expensing under Code Sec. 179 in the tax year that it is placed in service if business use of the vehicle exceeds 50 percent. However, the sum of the section 179 expense depreciation and regular first-year depreciation deduction (including any bonus depreciation) cannot exceed the applicable first-year depreciation cap for that vehicle.

Personal and Business Use

If you use your business vehicle for personal trips (including commuting back and forth from home and your principal business location) you must pro-rate your deduction to exclude the percentage of personal use. As long as you use your vehicle more than 50 percent for business during the year, you can pro-rate your deduction. You also have the option of using the standard mileage rate, based on miles of business use for the year times the prescribed rate.

Bonus Depreciation

Bonus depreciation may be added to the available first-year depreciation allowed on the purchase of a vehicle used for business if certain criteria are met. The vehicle must be new and placed in service before January 1, 2027. For most vehicles claiming bonus depreciation are allowed an additional $8,000 in first year depreciation over and above the $11,200 first-year limit (e.g. For luxury car, maximum allowed depreciation is $19,200 for the first year with bonus depreciation).


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