Buy a truck or SUV before the end of the year, get tax relief

Did you know that you can buy a large truck, SUV, or other vehicle for your business and be able to deduct 100% of the purchase price as a tax deduction, according to IRS rules? If you are reading this before December 31, there is still time to take advantage of this rule for the 2020 tax year.

Small businesses can deduct the total purchase price of a commercial vehicle if it has a weight rating greater than 6,000 pounds. The weight is based on an industry figure called Gross Vehicle Weight Rating (PNBV).

If the vehicle qualifies for a full deduction, you do not have to depreciate it (that is, spread the deduction) over a period of several years. You get the full deduction value in a year – a huge tax savings.

This rule was once called the Hummer Loophole, which Congress technically eliminated years ago. However, the Tax Cuts and Jobs Act 2017 reinstated a version of the Hummer Loophole from 2018. To take advantage of the 100% deduction, you must apply the rules for expensing Article 179, as well as the bonus amortization rules of Article 168, to arrive at 100% deductibility.

Qualification criteria

To take advantage of the deduction for the 2020 tax year, there are three main criteria:

  1. Buy before December 31, 2020: The vehicle must be purchased and put into service during 2020, i.e. by December 31, 2020 at the latest.
  2. GVWR over 6000 lbs: A commercial vehicle such as a large pickup truck, van, or large SUV, with a GVWR of more than 6,000, may be eligible for the 100% deduction. In North America, this weight rating must be marked on the inside of the driver’s door, near the latch. Various option sets can affect a model’s GVWR, so be sure to check the label of the vehicle you are purchasing. See the table below for a partial list of eligible vehicles by weight.
  3. Commercial purposes: If you plan to use the vehicle partially for personal purposes, at least 50% of it should be used for business purposes. However, if it is for partial personal use, you can only deduct the percentage used for business purposes. Multiply the purchase price by the percentage of commercial use (51% to 100%).

What about light trucks and cars?

Commercial vehicles valued at 6,000 pounds or less are always written off. However, the deduction for the 2020 tax year for lighter vehicles is limited to the first $ 18,100.

Any portion of the purchase price over $ 18,100 must be amortized over a period of several years in accordance with IRS amortization rules.

What is this tax reduction worth?

Saying you can deduct the full amount does not mean you deduct the purchase price amount dollar for dollar from your income tax. Rather, you need to know your tax bracket. You multiply the purchase price amount by your marginal rate to find the value of the tax break.

Example: if the purchase price of a heavy truck is $ 95,000 and you are in the 24% tax bracket, to obtain a number on the back of the envelope for the value of your write-off, you multiply 95,000 x 0.24 = 22,800. Your deduction could reduce your taxes by $ 22,800 for 2020. Not bad!

In addition to the section 179 deductions and the depreciation premium, remember that you can also deduct mileage charges for the use of the vehicle. See IRS 2020 Mileage Rate.

Also see: Main tax deductions for small businesses.

Like all tax rules, there are a number of exceptions and exclusions, so check with your tax advisor about your situation and any limitations.

List of eligible heavy trucks and SUVs

Audi

Bmw

  • Bmw x5m
  • BMW X5 XDrive35I
  • Bmw x6m
  • BMW X6 XDrive35I
  • BMW X7 (all models)

Bentley

Buick

  • Buick Enclave 2WD
  • Buick Enclave 4×4

Cadillac

  • Cadillac Escalade 2WD
  • Cadillac Escalade AWD
  • Cadillac XT5
  • Cadillac XT6

Chevrolet

  • Colorado 2.8L AWD
  • Silverado C1500
  • Silverado C2500
  • Silverado C3500
  • Silverado K1500
  • Silverado K2500
  • Silverado K3500
  • Suburb C1500
  • Suburb K1500
  • blazer
  • Tahoe 2WD LS
  • Tahoe 4WD LS
  • Tahoe hybrid
  • Cross member 2WD
  • 4×4 Traverse

Chrysler

  • Chrysler pacifica
  • Chrysler Pacifica Hybrid

Dodge

  • Dodge Durango 2WD
  • Dodge Durango 4WD
  • Dodge Grand Caravan

Ford

  • Ford Expedition 2WD
  • Ford Expedition 4WD
  • Ford Explorer 2WD
  • Ford Explorer 4WD
  • Ford F-150 and larger 2WD
  • Ford F-150 and larger 4WD
  • Ford Flex AWD

GMC

  • GMC Acadia 2WD
  • GMC Acadia 4×4
  • GMC Sierra C1500
  • GMC Sierra C2500 HD
  • GMC Sierra C3500 HD
  • GMC Sierra C3500 HD
  • GMC Sierra K1500
  • GMC Sierra K2500 HD
  • GMC Sierra K3500 HD
  • GMC Yukon 2WD
  • GMC Yukon 4WD
  • GMC Yukon Hybrid
  • GMC Yukon XL C1500
  • GMC Yukon XL K1500

Honda

  • 4×4 driver
  • Honda Odyssey
  • Honda Ridgline AWD

Infiniti

  • Infiniti QX80
  • Infiniti QX56

Jeep

  • Jeep grand cherokee
  • Jeep Gladiator Rubicon

Land Rover

  • Range Rover 4×4
  • Range Rover SPT
  • Discovery
  • Defender

Lexus

Lincoln

  • Lincoln MKT AWD
  • Lincoln Navigator
  • Lincoln aviator

Mercedes-Benz

  • Mercedes-Benz G550
  • Mercedes-Benz GLS
  • Mercedes-Benz GLE
  • Mercedes-Benz Metris & Sprinter

Nissan

  • Nissan Armada 2WD
  • Nissan Armada 4WD
  • Nissan NV 1500 S V6
  • Nissan NVP 3500 S V6
  • Nissan Titan 2WD S

Porsche

RAM

  • Ram Promaster 1500-3500
  • Ram 1500 and above

Subaru

You’re here

Toyota

  • Toyota 4Runner 2WD LTD
  • Toyota 4Runner 4WD LTD
  • Toyota landcruiser
  • Toyota Sequoia 2WD LTD
  • Toyota Sequoia 4WD LTD
  • Toyota Toundra 2WD
  • Toyota Toundra 4WD

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