For passenger automobiles used for business and placed in service after December 31, 2017 for which the additional first-year bonus depreciation deduction is not claimed, the maximum amount of allowable depreciation is as follows:
- Year 1 – $10,000
- Year 2 – $16,000
- Year 3 – $9,600
- Year 4 and thereafter – $5,760
These dollar limits are indexed for inflation for passenger automobiles placed in service after 2018. The maximum first-year bonus depreciation allowance remains $8,000 for passenger automobiles eligible for first-year depreciation. The TCJA allows for used property to be eligible for bonus depreciation for assets purchased and placed into service after September 27, 2017. This means that if the vehicle is used 100% for business, the maximum depreciation for the first year would be $18,000.
The cost of a sport utility vehicle (SUV) placed in service by a taxpayer is subject to a $25,000 Section 179 limit on a per vehicle basis. These means that if your SUV meets certain qualifications, you may be able to expense $25,000 in the first year. For purposes of this limitation, an SUV is any four-wheeled vehicle that:
- Is primarily designed to or can be used to carry passengers over public streets, roads, or highways
- Is not subject to Code Sec. 280F (imposing annual dollar limitations on depreciation and expensing for most autos rated at no more than 6,000 pounds unloaded gross vehicle weight
- Does not have certain bus-like or truck-like characteristics
Under the TCJA, the amount for SUV Section 179 will be adjusted for inflation. Bonus depreciation is not limited on qualified SUVs. In addition to the $25,000 Section 179 deduction, you could also deduct 50% of the remaining basis if purchased before September 27, 2017 and 100% after (depending on business usage) through December 31, 2022 and phases out thereafter.
Effective for transfers after December 31, 2017, the rule allowing the deferral of gain on like-kind exchanges has been modified to allow for like-kind exchanges only with respect to real property that is not held primarily for sale. This means that if the trade-in value exceeds the depreciated value, you will recognize a gain currently.
Regular depreciation, bonus depreciation, and Section 179 are allowed only to the extent the automobile is used for business. Therefore, if the business use is 70% (30% personal use), then only 70% of the above depreciation deduction maximums apply. If you have utilized the $25,000 Section 179 deduction on your SUV and business use falls below 50%, the full amount of previous Section 179 will be recaptured as ordinary income in that year.
A vehicle which mixes use (business and personal) requires detailed contemporary mileage records in order to justify the business percentage usage. Including mileage for each trip, business purpose for the mileage, the name of any person(s) you met, etc.
Employees will not be able to deduct their vehicle expenses on their personal tax return Form 1040. Employee business expenses are deducted as an itemized deduction subject to the 2% of adjusted gross income limitation which have been suspended by the TCJA after December 31, 2017 through December 31, 2025.
Although not part of the TCJA, you might want to know that the standard mileage rate for 2018 is $0.545 per mile.
Caution: This explanation is general in nature and should not be used for specific planning. Contact a tax professional for your specific planning needs.