If you own a business, you should know the tax rules for buying a SUV or a truck. You can and should deduct the operating expense of your vehicle if you use it for your business. But you can also deduct the cost of your SUV or truck as well.
As an SUV owner and a small business owner, this article will highlight the latest automobile tax deduction rules for 2024 and beyond. New cars, trucks, and SUVs, are incredibly expensive nowadays due to elevated inflation.
With the tax reform act passed at the end of 2017, buying a truck or an SUV that is over 6000 pounds became more favorable for 2018 and beyond. Here are the tax deduction rules for SUVs and trucks. Keep in mind some deductions are being phased out and tax rules are always subject to change.
Let me state up front that I'm not an accountant, but I do have an accountant. I am also a tax law enthusiast who strives to minimize his tax liability since I started working in 1999.
I've paid well over $3 million in Federal income taxes over the past 22 years. Finally, I have been a small business owner since 2009 and have had multiple SUVs. Currently, I drive a 2015 Range Rover Sport, which I'll probably keep for another five years.
The first thing I did to understand the process of writing off a vehicle as a business expense was to go to the Range Rover dealer of course! Take a look at this SUV/Truck automobile tax deduction example for your business.
I asked the salesman what he sees most businesses doing when it comes to purchasing a vehicle. He told me, “Small businesses tend to purchase outright or finance, and large businesses tend to lease.” The idea is that large businesses who use a lot of vehicles don't want to bother with inventory management if they are not a car business.
The salesman showed me a special “Tax Depreciation Comparison” pamphlet (photo) that just “flies off our shelves” to highlight how much a $61,000 Range Rover Sport in 2011 (was cheaper back then) could be depreciated vs. a $61,000 luxury car which is not over 6,000 pounds.
As you can see from the picture, 95% of the Range Rover Sport could be depreciated over four years if 100% used for business vs. only 34% for a similarly priced car. The reason is based on Section 168(k) and Section 179 of the Internal Revenue Code for vehicles over 6,000 pounds (includes max load).
I thanked the salesman for the information. Then I proceeded to send my $2,000 a year tax accountant an inquiry about whether this example indeed holds true based on the latest tax laws for small businesses. Here's some of his feedback.
You can only write-off 100% if the vehicle is used 100% for business. Keep in mind, commuting from your home to and from your business in the vehicle is not considered business-use and would reduce your deduction. It's generally impossible to have 100% business use, hence the more conservative 95% depreciation used in the above example. Be sure to keep a mileage log and track what each trip is for.
Business-use encompasses traveling between job sites (not between your business location and your home), transporting goods and equipment, and any business-related travel away from your business' location.
To determine your business-use percentage, divide the total business-use miles driven by the overall total miles driven for the year. Note: the vehicle must be driven over 50% of the total miles to qualify for business use deductions. The percentage is then applied to the vehicle purchase price to determine the Section 179 deductible amount.
Not bad! We've got a winner here if you'd like to purchase a new SUV. The IRS allows employees and self-employed individuals to use a standard mileage rate for expensing vehicles under the 6,000 pound limit, which for 2024 business driving is 67 cents per mile. See the IRS page for more details.
Bonus depreciation can also let businesses claim an additional first-year depreciation deduction on some vehicles. But the amounts are dropping. For 2024, the bonus depreciation rate is down to 60%. It will drop further down to 40% for 2025, 20% for 2026, and be phased out to 0% for 2027 onward unless changes are implemented.
Also, the Section 179 deduction begins to phase out on a dollar-for-dollar basis once your total equipment purchases go over the spending cap (2024: $1,220,000 deduction limit with a total equipment spending cap of $3,050,000).
Both new and used vehicles purchases can qualify for the Section 179 deduction though. Plus, you can still claim the deduction if you finance a vehicle, which can be helpful for cash flow.
However, from my understanding there is a reduced Section 179 limit of $30,500 in 2024 for heavy vehicles like SUVs that are over 6,000 but less than 14,000 pounds.
If you can't or don't want to deduct based on mileage, you can deduct based on cost of operating the vehicle. Costs include tires, maintenance, gas and so forth. It's one or the other.
The nitty gritty can get complicated, so always check with a tax specialist for the latest details before making any tax-related decisions.
So there you have it folks. The tax rules for deducting the cost of an SUV or truck are quite clear.
The reason why Land Rover has tons of Tax Depreciation pamphlets that are “flying off the shelves” is because plenty of businesses are purchasing 6,000 lbs vehicles under their business entity and writing off the expense over time due to what's allowable by tax law.
It's important to note the IRS screens small businesses based on expense and tax ratios for auditing.
For example, if your business only brings in $30,000 gross revenue a year, buying a $75,000 SUV amortized over four years is probably going to raise red flags. But if your gross business revenue is $500,000 a year, then writing off $10,000 – $45,000 a year in SUV or truck expenses sounds more reasonable.
The IRS is on the look out for small businesses that are created simply to dump lifestyle expenses into the entity to reduce income taxes.
Here are the best reasons to start an online business today. I started an online business in 2009 and have been able to deduct the operating expenses of my car. If and when I get a new SUV in 2026, I will deduct the cost of the SUV as well.
As always, talk to your accountant before conducting any tax changes. The rules are constantly changing.
Given I prefer SUVs over cars for safety, it makes sense for me to buy a brand new vehicle under my business if it comes time to buy a new car. I'll be getting roughly a 30% discount from purchase price after considering tax deductions.
Further, with used vehicle prices so high due to the pandemic, buying a new car to then be able to deduct makes it even a better deal.
Just know the average new car price in 2024 is about $49,000. That's a lot of money to spend for the average business or household. Therefore, please buy an expensive SUV or truck just because you can deduct the cost to your business. Instead, buy an SUV or truck for its utility and necessity first, and then take advantage of the Section 179 tax deduction rule.
I want to highlight a great comment from a reader who is in the commercial equipment leasing / financing industry. He provides reasons for leasing instead of purchasing.
If you want to avoid the “depreciation recapture,” and don’t want to run the vehicle into the ground, you can lease the vehicle instead. You still can expense the rental payments under your business, and at the end of the lease, you simply return it. This way you:
a) Did not spend a ton of money upfront to acquire it (conservation of capital)
b) Have written off the rental payments 100% (maximized tax write offs)
c) Don’t take a loss on selling the vehicle (prevents loss on selling a depreciated asset)
d) Aren’t stuck with an obsolete vehicle (curbs obsolescence)AND
c) If the vehicle was truly a revenue generating asset for you business (ie, you use the flashy car to gain more clients and it actually gets you more clients, or you use the truck to transport goods that you obtain and sell at a profit), then you have generated positive cash flow and have completely written off the cost of using and acquiring the vehicle!
Remember, invest in appreciating assets, lease depreciating assets!
Now imagine if you also did this with your computers, software, servers, etc.
Here's an example list of SUVs and trucks with a gross weight over 6,000 lbs. Usually each vehicle will have its weight on the side door. If you're unsure, just ask the dealer. These vehicles should qualify for the automobile tax deduction rule. But of course, double check.
Of course, there are new vehicles with new modifications all the time. Double check with your car sales person to make sure the vehicle you are buying is over 6,000 lbs!
A business is one of the best ways to shield your income from more taxes. You can either incorporate as an LLC, S-Corp, or simply be a Sole Proprietor. If you incorporate as a pass-through entity, be sure to check out the PTE tax election to save on your federal taxes.
As a sole prop, no incorporating is necessary. Just be a consultant and file a schedule C. Every business person can start a Self-Employed 401k where you can contribute up to $69,000 in 2024 (up to $23,000 in employee elective deferrals and up to 25% of employer compensation).
All your business-related expenses are tax deductible as well. Simply launch your own website like this one in under 30 minutes to legitimize your business. Here's my step-by-step guide to starting your own website with Bluehost.
As a rental property business owner, you can also deduct many expenses related to owning and operating your rental properties. Further, owning real estate today is my favorite asset class to profit from the post-pandemic recovery. Inflation whittles down the cost of debt and acts as a tailwind for your asset values.
If you don't want to invest in physical real estate, invest in real estate through Fundrise or CrowdStreet. These are the top real estate crowdfunding platforms today that are free to sign up and explore.
Fundrise focuses on diversified eREITs. It's nice to invest in a fund for 100% passive income. Fundrise has about 387,000+ investors with over $3.2 billion in capital as of 2023. Fundrise was founded in 2012 and is one of the oldest crowdfunding platforms today. For most people, investing in a diversified eREIT is the way to go.
CrowdStreet focuses on individual commercial real estate and multi-family properties in 18-hour cities. 18-hour cities like Memphis have lower valuations and potentially higher growth. If you have the capital, you can build your best-of-the-best portfolio yourself.
I've personally invested $954,000 in real estate crowdfunding across 18 projects. My goal is to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$350,000.
Financial Samurai is a six-figure investor in Fundrise funds and Fundrise is a long-time sponsor of Financial Samurai. Our investment outlooks about real estate are highly aligned.
As a business owner, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
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Sam worked in investment banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments. He spends most of his time playing tennis and taking care of his family.
Financial Samurai has been around since 2009 and is one of the largest independently-owned personal finance sites in the world. Always check with an accountant if you plan to make any big tax moves. Join 65,000+ others and sign up for my free weekly newsletter here. I am the Wall Street Journal bestseller author of Buy This Not That.
Tax Rules For Buying A SUV Or Truck To Deduct As A Business Expense is a FS original post.
Sam started Financial Samurai in 2009 to help make sense of financial chaos. With an MBA from Berkeley and 13 years of experience at Goldman Sachs and Credit Suisse, he helps readers achieve financial freedom sooner. Sam is currently investing in private real estate and AI companies through Fundrise. Mortgage rates are coming down and artificial intelligence is here to stay.
173 Comments Oldest Most Voted Inline Feedbacks View all comments 2 years agoI just had a client ask me if he can purchase a $210,000 SUV and write off the entire amount since it is over the 6,000 lb rule. Given the amount of personal expenses I know he runs through the company, I feel trying to push this amount through would be a red flag with a tornado siren with it, a bad idea to try to do. Your thoughts?
christie Neils 3 years agoI am not sure I understand the saleman’s analysis on SUV over 6000lb or a car under 6000lb. I did an simulation tax run for 2019 for above 2 different cases. I see the depreciation over the 5 years are the same , both are the cost the car , $61,000 as in the example as in the article. Can anyone confirm above example is true or not?
3 years agoYour article stated:
“3) Start A Business And Save On Taxes: A business is one of the best ways to shield your income from more taxes. You can either incorporate as an LLC, S-Corp, or simply be a Sole Proprietor (no incorporating necessary, just be a consultant and file a schedule C). ”
Sam, please be careful when mixing legal terms of art regarding formal business entities and IRS income Tax elections. A corporation is formed or incorporated, a Limited Liability Company is formed or organized depending on the State, not incorporated.
Corporation does not mean Company. These are two legally distinct formal business entities. Most all 50 states have statutes regarding formation of a Corporation, Limited Liability Company, Series Limited Liability Company, Partnership, Limited Partnership or Limited Liability Partnership. Formation of a formal entity is to provide segregation of business liability and shield personal assets. (absent fraud or crime)
A sole proprietorship has no segregation of assets nor does it shield personal assets from business liabilities so it is a poor choice for a business owner to make.
A Corporation in my State and most any State I know of can have liens placed upon its real and personal property and turnover proceedings against its cash accounts. For this reason, the choice of legal entity in my State Texas and most any State I do business in is a LLC or a Series LLC since they have charging order protection. In addition, a LLC or a individual Series of a Series LLC may choose (elect) how it is to be taxed. LLCs or Series of a Series LLC can choose to be taxed as a C-Corp, S-Corp, Partnership or Sole Proprietorship (no tax benefit choosing proprietorship).
Note an S-Corporation is not a choice of formal business entity it is an income tax election to the IRS. One does not form an S-Corp at their State’s SOS office. They file a income tax election to be taxed as an S-Corp. Note, only business entities that all members are US Citizens may file S-Corp election.
One needs to consult with a Asset Protection expert attorney for forming a formal entity. One needs to consult with a tax planning expert on best choice for the entity and owner/members. Do not consult with at a tax planning person on best business entity to form unless they are an attorney.
Since TCJA of 2017 the cap on C-Corp tax rate is 21%, so much lower tax rate than election of a S-Corp or Partnership pass through elections which business profits are taxed at possible higher personal tax rate.
