Automobiles

Business-related vehicle expenses can be deducted using:

  1. the standard mileage-rate method of 54 cents per mile in 2016 and 53.5 cents per mile in 2017
  2. the actual-cost method (total out-of-pocket expenses for fuel, insurance, repairs and other vehicle expenses, plus depreciation).

Purchases of new or used vehicles may be eligible for Sec. 179 expensing.  However, many rules and limits apply. For example, the normal Sec. 179 expensing limit generally applies to vehicles with a gross vehicle weight rating of more than 14,000 pounds (large truck or bus). A $25,000 limit applies to vehicles (typically SUVs) rated at more than 6,000 pounds. This is known as the “Hummer Loophole”.

Vehicles rated at 6,000 pounds or less are subject to the passenger automobile limits. For autos placed in service in 2016, the first-year depreciation limit is $3,160. The amount that may be deducted under the combination of MACRS depreciation and Sec. 179 for the first year is limited under the luxury auto rules to $11,160.

In addition, if a vehicle is used for business and personal purposes, the associated expenses, including depreciation, must be allocated between deductible business use and nondeductible personal use. The depreciation limit is reduced if the business use is less than 100%. If business use is 50% or less, you can’t use Sec. 179 expensing or the accelerated regular MACRS; you must use the straight-line method.

Tax Planning Strategy:

I would recommend that you use the actual cost. The cost of a car makes it more worthwhile. One problem is keeping track of your expenses but the use of a credit card makes tracking your expenses easy. Unfortunately, you must maintain a mileage log with both alternatives.

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