100% first-year bonus depreciation is allowed for heavy SUVs, pickups, and vans used over 50% for business

The TCJA allows unlimited 100% first-year bonus depreciation for qualifying new and used assets that are acquired and placed in service between 9/28/17 and 12/31/22. However, a used asset cannot have been previously used by you or your business entity; it must be new to you or the entity. Under prior law, the first-year bonus depreciation rate for 2017 was only 50%, and bonus depreciation was not allowed for used assets.

The new law’s 100% first-year bonus depreciation deal can have a hugely beneficial impact on first-year depreciation deductions for new and used heavy vehicles used over 50% in your business. That’s because heavy SUVs, pickups, and vans are treated for tax purposes as transportation equipment rather than passenger vehicles, and that means they qualify for 100% first-year bonus depreciation.

However, you must use a heavy vehicle over 50% for business for 100% first-year bonus depreciation to be available. Otherwise, you must depreciate the business-use percentage of the vehicle’s cost over a six-year period.

Heavy vehicle definition

100% first-year bonus depreciation is only available when an SUV, pickup, or van has a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds. Examples of suitably heavy vehicles include the Audi Q7, Buick Enclave, Chevy Tahoe, Ford Explorer, Jeep Grand Cherokee, Toyota Sequoia, and lots of full-size pickups.

You can usually verify a vehicle’s GVWR by looking at the manufacturer’s label, which is usually found on the inside edge of the driver’s side door where the door hinges meet the frame. Don’t expect dealer sales personnel to know which vehicles have GVWRs above 6,000 pounds. Check for yourself.

Example

In 2018, you buy a new $60,000 heavy SUV and use it 100% in your business. You can deduct the entire $60,000 in 2018 thanks to the new 100% first-year bonus depreciation break. If you only use the vehicle 60% for business, your first-year bonus depreciation deduction is $36,000 (60% x $60,000)

If you instead buy a used $45,000 heavy SUV, pickup, or van, you can still deduct the entire cost in 2018 thanks to the 100% first-year bonus depreciation break — which is allowed for both new and used vehicles. If you only use the vehicle 60% for business, your first-year bonus depreciation deduction is $27,000 (60% x $45,000).

TCJA eliminates employee deductions for un-reimbursed vehicle expenses

Now for the only bad news. Some companies require employees to use their own vehicles for business-related travel. Under prior law, you could claim an itemized deduction for your total un-reimbursed business-usage vehicle expenses, subject to a 2%-of-adjusted-gross-income (AGI) threshold for writing off miscellaneous itemized expenses.

For 2018-2025, the new law eliminates write-offs for miscellaneous itemized expenses that were subject to the 2%-of-AGI deduction threshold under prior law. So for 2018-2025, an employee can no longer claim deductions for unreimbursed business-usage vehicle expenses. If this unfavorable change affects you, try to either negotiate a salary adjustment to compensate for the loss of the deduction or persuade your employer to provide tax-free reimbursements for the business percentage of your vehicle expenses.