Can You Write Off a New Car Purchase?

Purchasing a new car for business purposes can offer significant tax advantages. While a personal vehicle purchase is generally not deductible, specific provisions allow businesses to recover a portion or full cost of a new vehicle for business activities. These deductions are subject to various rules and limitations, primarily revolving around the vehicle’s use and type.

Determining Eligibility for Vehicle Deductions

A vehicle must primarily serve a business function to qualify for tax deductions. The IRS distinguishes between business, commuting, and personal use, allowing deductions only for business travel. Business use generally includes travel between different business locations, meeting clients, or performing business tasks like picking up supplies. Commuting between home and a regular workplace, or personal errands, are not considered deductible business use.

The business-use percentage directly impacts the deductible amount; only the portion attributable to business use is deductible. For instance, if a vehicle is used 70% for business and 30% for personal travel, only 70% of the associated costs can be deducted. The IRS requires that a vehicle be used more than 50% for business to qualify for certain accelerated depreciation methods.

The type and weight of the vehicle also influence available deductions. Vehicles with a Gross Vehicle Weight Rating (GVWR) exceeding 6,000 pounds, such as many heavy SUVs, pickups, and vans, are often subject to different deduction limits than lighter passenger automobiles. These heavier vehicles are not subject to the same annual depreciation caps that apply to passenger cars, which can offer a greater tax break.

Passenger automobiles, defined as cars, light trucks, and vans under 6,000 pounds GVWR, are subject to specific depreciation limits often referred to as “luxury car limits.” For a passenger automobile placed in service in 2024, the maximum first-year depreciation deduction is $12,400 without bonus depreciation, or $20,400 if bonus depreciation is claimed. These limits are proportionately reduced if the business-use percentage is less than 100%.

Understanding Deduction Methods for Vehicle Purchases

Businesses have several methods to deduct the cost of a new vehicle purchase, each with distinct rules. These methods focus on recovering the vehicle’s initial cost over time or in the first year it is placed in service. The choice of method can significantly impact the immediate tax benefit.

The Section 179 deduction allows businesses to expense the full cost of qualifying property, including certain vehicles, in the year they are placed in service, rather than depreciating them over several years. For tax years beginning in 2024, the maximum Section 179 expense deduction is $1,220,000, with a total equipment spending cap of $3,050,000. This deduction is limited to the taxpayer’s business taxable income. For heavy SUVs, trucks, and vans with a GVWR between 6,001 and 14,000 pounds, the maximum Section 179 deduction is capped at $30,500 for 2024.

Bonus depreciation is another accelerated depreciation method that permits businesses to deduct a large percentage of the cost of qualifying property in the year it is placed in service. For property placed in service in 2024, the bonus depreciation rate is 60%. This rate is scheduled to decrease in subsequent years, falling to 40% in 2025 and 20% in 2026, before phasing out entirely in 2027. Unlike Section 179, bonus depreciation does not have a business income limitation, making it beneficial for businesses with limited taxable income. The IRS generally requires Section 179 to be applied first, followed by bonus depreciation.

For passenger automobiles, the use of bonus depreciation interacts with the luxury vehicle limits. For vehicles over 6,000 pounds GVWR, bonus depreciation can apply to the full cost, subject to the overall bonus depreciation percentage for the year.

The Modified Accelerated Cost Recovery System (MACRS) is the standard method for depreciating most business property, including vehicles, over a specified recovery period. Vehicles are typically assigned a five-year recovery period under MACRS. This method is used when Section 179 or bonus depreciation is not fully utilized or elected. The depreciation amounts are calculated annually over the recovery period, providing deductions spread out over several years.

These depreciation methods specifically address the recovery of the vehicle’s purchase price. They are distinct from deductions for operating costs, such as fuel, maintenance, insurance, and repairs, which can be claimed either through the standard mileage rate or by tracking actual expenses. While depreciation is a component of actual expenses, the methods discussed here focus on the initial capital cost recovery. The standard mileage rate, for instance, includes a component for depreciation, and therefore cannot be used if Section 179 or bonus depreciation was claimed for the vehicle.

Required Documentation and Reporting

Accurate and thorough record-keeping is fundamental to substantiating vehicle deductions. The IRS requires taxpayers to maintain adequate records to prove the business use of a vehicle and the basis for all claimed deductions. Without proper documentation, claimed deductions may be disallowed upon audit.

Proof of purchase and cost basis documentation is essential. This includes retaining purchase agreements, invoices, and other documents establishing the vehicle’s original cost, the date it was purchased, and the date it was placed in service for business use. These documents form the foundation for calculating the depreciable basis and applying the chosen deduction method. Records of any modifications or trade-ins that affect the vehicle’s cost basis should also be kept.

Maintaining detailed mileage logs is paramount for substantiating the business-use percentage. These logs must differentiate between business, commuting, and personal miles. Acceptable methods for tracking mileage include physical logbooks, mobile applications, or maintaining odometer readings at the beginning and end of each tax year, along with records of business trips. Each entry should typically include the date, destination, purpose of the trip, and mileage driven.

Other relevant records should also be kept to support the overall deduction. This includes documentation for trade-ins, which impact the net cost, and records of significant modifications that alter its depreciable basis. All records should be organized and readily accessible.

When preparing a tax return, the information gathered from these records is reported on specific IRS forms. For vehicle depreciation and Section 179 deductions, information such as the vehicle’s cost, date placed in service, gross vehicle weight rating (if applicable), and the calculated business-use percentage will be needed for IRS Form 4562, Depreciation and Amortization.