Vehicle Tax Deductions (Writing off a Vehicle for business Using Section 179 Depreciation)

there are a lot of different deductions
around vehicles especially when a vehicle is being used in business so in
this video I'm gonna help you navigate some of those but we're gonna focus
specifically on depreciation rules for automobiles well this video is designed
for automobiles and vehicles use within a business what type of depreciation
deductions you have including 179 and a few more by the end of this video I
think you're gonna have a good understanding of what deductions are
available to you if you want to go purchase a new vehicle for your business what's going on internet! Mike the CPA
here welcome back to the channel and thank you so much for taking time out of
your day to be here I think the first thing I want you guys to know or be
aware of is that when you know when a section 179 apply to you if you're gonna
buy a new vehicle well there the first thing is that it only applies section
179 applies when it's the Year number one the year you place the vehicle and
service has to be the same year you bought it as when you can use 179
because once you're past that year you can't use anymore the second thing that
would qualify you for you to be able to take accelerated depreciation like 179
is you have to use the vehicle that you're buying for your business more
than 50% of the time so what does that even mean you can't be just using this
vehicle 80% of the time for your personal use and only 20% of the time
for your business and expecting to fully be able to deduct everything that you
just down as that vehicle it's not gonna work that way for you guys so how do you
determine how much you use it for business versus personal and there's a
really easy way to do that the easiest way I think for you guys to determine
that for yourself the most accurate way is to keep a mileage log whatever you
want to use and I know there's a lot of different apps out there now to help you
keep track of your vehicle mileage especially within your business if your
community in a LAN you're driving a lot going to customer sites going to
Congress's conventions things like that all of these all these things these
miles you want to track those and it's really really important you do because
it's gonna provide you substantiation of your records if you were ever audited by
the IRS for example let's say you drive 10,000 miles of the year for in this
vehicle you two spot for your business of those 10,000 miles if 8,000 of them
were for business use then that means your vehicle used is used 80% of the
time for business which like we just said it has to be more than 50% right
right about 50% to take 179 well in that case as long as you're at 50% or above
then you're okay but you just you would figure out your total mileage
and determine of those total total miles what percent was used for business and
what was percent was used for your personal use hope you guys can see this
on the board here but basically what I wrote or what I what I have up here guys
is the the weights okay I have 6000 pounds and 14,000 pounds and
these amounts are very important you're about to understand why so in the tax
world I want you guys to get used to an acronym g VW okay g VW what the heck is
that well it stands for gross vehicle weight why am I talking about this
vehicle weight of the gross vehicle weight am i talking about it's a fat
shame your vehicle no no guys I'm not fat shaming your vehicle but you're
gonna see in just a second here why knowing the weight of your vehicle when
it's loaded or when it's unloaded of why it's so important and how that can
impact your overall deduction you can take in the first year when it comes to
depreciation and section 179 all right let's just give you guys a quick example
of how section 179 works just in case you don't know or I can't remember let's
say you buy a vehicle for twenty three thousand dollars the and what many
people don't understand is well that there aren't section 179 limits which
we're about to go over but you can actually choose how much section 179 you
want to apply you don't have to even if you have a limit of up to ten thousand
you don't have to apply that ten thousand okay you can say well I want to
just take three thousand because I want additional expenses in the coming years
when I think my income is gonna be higher okay so you can actually just
choose how much section 179 you want to use of course up to the limit amount
right you can't go over the limit but if you have a vehicle for twenty three
thousand dollars that you bought you decide you want to take three thousand
dollars of accelerated 179 depreciation that leaves you with a remaining basis
for depreciation purposes of twenty thousand dollars and of course you would
depreciate the remaining twenty thousand dollars over a five year period all
right guys let's cover some of limits around depreciation and section
179 when it comes to vehicles that we use in business because there's a lot of
limits when it comes to vehicles because the IRS doesn't want people who buy
these really expensive cars and write everything off the first year so they
limit it and you're gonna sound so smart if you remember this you're gonna sound
so so smart section to ATF section to ATF that is the limitations that are
being applied what that is what that means is section to ATF applies to
people who who buy property for business in this case we're talking about
vehicles of course where they also not only use it for business but they could
use it personally as well and so there's where these limitations are coming in
the IRS knows that nobody very rarely unless it's strictly a car that sits
with the company a lot of people take the car they drive for their business
they take they take in home at night right they take it and they use it for
to go get their groceries pick up their kids from school so they are using it
personally the thing that I need to mention before we cover the specific
dollar amounts that once you can deduct it each year is that if you if you're
not now these you should assume that this these amounts of is if you use your
business or your vehicle for business 100% use for business use okay if you're
using it for business 100 percent of time if it's anything less than that
whether it's 80 percent business use 70 percent business use
then limitations apply to these amounts okay so instead of you know eighteen
thousand or ten thousand it could be reduced to 80% of those amounts if
you're not using it completely for business let's cover what those limits
are right now so you get a better idea of how what type of deductions you can
get on your vehicle if you if you buy the vehicle the year you buy the vehicle
you place it in service if there's a concept known as bonus depreciation I'm
not gonna get into all that right now because it's another complicated subject
when it comes to taxes but just now it's available and if you use your vehicle
for business more than 50% of the time this is probably not going to be an
issue at all for you to apply with bonus you
who deduct up to $18,000 in 2018 and I expect these numbers to be the same in
2019 when it comes to next year's taxes as long if you're using bonus okay if
you don't use bonus the first year you're limited to $10,000 on your
vehicle okay $10,000 and there's gonna be some
exceptions to these that we're gonna talk about here in just a second but
these amounts would include 179 so meaning that through normal Dupree
because you get normal depreciation plus 179 but the limit the max you can deduct
the first year if your vehicle has a gross vehicle weight of 6,000 pounds or
less and your first year is usually $10,000 okay the second year can't you
take 179 in your second year we talked about this you cannot so going after the
first year the vehicle starts a normal 5 year depreciation cycle each year you
get to deduct to one-fifth of the vehicle cost but the maximum
depreciation limit in the second year is $16,000 in the third year the maximum
amount of depreciation you can take on your vehicle is 9600 dollars and all the
years after that is five thousand seven hundred and sixty dollars and tell the
point the vehicle is fully depreciated now these limits used to be a lot lower
than this a lot lower thank thankfully for the tax cuts and
Jobs Act they've really bumped up these amounts so you can actually deduct way
more depreciation than you used to be able to for your vehicle quick review
guys so based on your gross vehicle weight which you can look up just online
just search your vehicle model based on the weight and based on how much you use
that vehicle for business versus personally because you got to keep track
of your mileage right we have to keep good records and good mileage records
especially if we're under on it it's very important to have those and your
accountant love to see that kind of information they will love you to death
if you can provide that based on that these are your these are your limits of
how much you can expect you to deduct each year and year one two three and so
on and so forth okay now let's talk about some of the exceptions to that of
when you can actually deduct more than these limits because there are
exceptions all right guys as I mentioned here are the exceptions to the general
rule there's two main exceptions so when you and this is when that gross speak oh
wait that's when it this is when it becomes important to know this when you
have a car so you just had normal car unloaded
okay unloaded above 6000 pounds what kind of car could possibly weigh more
than 6000 pounds probably suburban right or like a large SUV something like that
that kind of car could or a van right a van could also get there too but more
than six thousand pounds but less than fourteen thousand pounds so more than
six thousand unloaded but less than fourteen thousand there is an exception
for that if you're using it in business you can deduct up to a maximum amount in
the first year of not of ten thousand which we were looking at earlier but up
to twenty-five thousand dollars now in the first year really nice right you're
like oh I'm liking the sound of that there is another let's look at another
exception very similar but now we're talking instead of cars we're now
talking about trucks and vans trucks and vans if they're loaded they're loaded up
like you have you know stuff in the bed of the truck or a van or whatever
greater than six thousand pounds when they're loaded but less than fourteen
thousand pounds that you can also take a maximum depreciation in the first year
of twenty five thousand dollars in the first year that is pretty awesome
right now you just have you got a major deduction in your first year and what
happens to the remaining the basis now you get to depreciate the rest over five
years so those are two exceptions when you can deduct even more section 179 or
accelerated depreciation based on the vehicle weight of your car okay so the
vehicle weight like I said we're not fat shaming here we're just pointing out
that knowing your gross vehicle weight very important very important all right
guys the last thing I want to cover with you in terms of 179 depreciation for
your vehicle is when there are times when there's no section 179 limits
that really apply to you and let me explain what those are so let me grab my
marker here so when no limits apply there's a couple instances the first one
being is now this would only apply to trucks and vans it would not apply to
cars or there are even Suburbans and almost all circumstances so mainly just
trucks and vans here is if you have a truck or a van and when you load it up
it weighs over 14,000 pounds remember we're eventually in 14,000 pounds now
you're gonna learn why that's important so if you have truck or van if it's
loaded when loaded over weighs over 14,000 pounds gross vehicle weight no
section once the v9 limit applies but in that circumstance you could use section
179 to fully depreciate the entire thing in the first year if if that situation
applies to you and your vehicle there's a few other instances where there's no
limits as well so let me just read those off to you real quick so if you have a
vehicle that is designed to seat more than nine passengers behind the driver
an example would be a hotel shovel van that's when no section one side live
it's going to apply there either you have a vehicle that has an open
cargo area or covered box that is at least six feet long and not readily
accessible from the passenger compartment an example would be a pickup
with a full-size cargo bed that's another example of went No Limits apply
on 179 and the last one is a vehicle that has an integral enclosure fully
enclosing the driver compartment and load carrying device do not have seating
behind the driver's seat and have nobody no body section protruding more than 30
inches ahead of the windshield an example would be a delivery van so those
are several examples of when no limits apply generally speaking which what can
you deduct in your first year if you can use bonus eighteen thousand if you don't
use bonus what can you generally do that ten thousand if your vehicle if it's
unloaded if you have a car that's unloaded but weighs more than six
thousand pounds you can deduct up to 20 5,000 if you have a truck or van when
loaded that is above 6,000 pounds but less than 14,000 you can deduct 25,000
and if you have a truck or van when loaded that weighs more than 14,000 you
can you have no limit you can basically write off the whole thing in the first
year so that's the quick review guys as you can see how sickening it is to try
to remember all these numbers it's I probably going to go crazy some day
trying to remember all this stuff but those are the current rules now the
section to ATF limits I wanted to point those out because those can always
change they can change it now for the longest time until this the new tax cuts
and Jobs Act hit those numbers were basically the same but that's what you
want to look for if if you're not certain of what the current year numbers
are is search that section to ATF limits for your you know for vehicles or ever
and you should be able to find some resources and information around that
other resources you can use to learn more about depreciation for vehicles and
just vehicle deductions in general is IRS Publication 946 that publication is
dedicated in fully dedicated they're just talking about depreciation it's
like the Bible of depreciation and it's out there for free I'll leave a link to
it in the handout and in the description section of the video the other
publication I want to point out is publication 463 that's another good want
to check out in terms of learning what vehicle expenses are available to you
now my quick question if I start out using my vehicle for more than 50
percent of time for business use then years down the road all of a sudden it
drops below 50 percent in this use does anything happen to me I'm glad you asked
that chipper that's the last thing I wanted to cover with you guys real quick
is that if you start using a business vehicle let's say whether it's a hundred
percent business use 80 percent seventy percent whatever and at some point down
the road you want to stop using it for for that reason and you start to use it
more and more personally the depreciation expenses that you've
already deducted in the past you might have to recapture a portion of that as
income in the current year so let's say you you do
you know depreciated initial $5,000 years ago because you had you know at
that point in time you were using it for business now the circumstance has
changed so now maybe in the current year you might have to report $5,000 as
ordinary income on your current year return so that's something that can
happen so this is something you want to be aware of and pay attention to all
right guys well that is pretty much all the information I have for you in
today's video I'm gonna make produce additional videos on other areas of
automobile deductions and vehicle deductions such as you know standard
mileage deduction of when it's best to take standard mileages versus actual
costs like the repairs oil changes license and dues and things like that so
all these guys all that in a different video but I hopefully you got a lot out
of this one I had so many people ask me questions about vehicles in the last
video I made on depreciation but that being said I hope you drive enjoyed the
video if you did please make sure to leave a like before you leave leave a
comment below let me know what you think about all this stuff if you have
questions whatever it is I will be more than happy to answer whatever questions
you may have I'll do my best to answer those and if you've never come to check
out this channel before then welcome here on money in life TV
we teach information that helps you become physically fit and I try to give
you a well-rounded financial education around finances and Vesey and taxes so
you can learn to build well for yourself with that being said use this
information to live your life on caged download the handout and I will see you
guys in the next video peace you


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