In recent years, dealers had to wait until the middle of December for the passage of favorable depreciation rules for business vehicles. The “Path Act” eliminates any uncertainty over the next several years. Dealers can now promote these favorable tax deductions to boost sales throughout the year. Sales staff should be familiar with these rules to accelerate sales to business customers.
Larger vehicles receive the highest tax benefits for business customers. Vehicles with gross vehicle weights (GVW) of more than 6,000 pounds but less than 14,000 pounds qualify for section 179 expensing of up to $25,000, as well as 50% bonus depreciation and regular depreciation. For example, a contractor purchases a new pickup truck with a GVW of 8,000 pounds for $40,000. The depreciation for 2016 will be as follows:
Section 179 election to expense $25,000
50% bonus depreciation ($15,000 x 50%) 7,500
Regular depreciation ($7,500 x 20%) 1,500
Total 2016 depreciation deduction $34,000
Certain vehicles, with a GVW of over 6,000 pounds could be written off completely under section 179 election to expense. These include nine passenger vans, vehicles with a cargo area of six feet in length not readily accessible from the passenger compartment (i.e. box truck), and vehicles without seating rear of the driver (i.e. cargo van).
Vehicles with a GVW of over 14,000 pounds would have no limits on depreciation and could be expensed completely. There would also be no limits on “specifically modified” vehicles. That would be vehicles modified in a manner so that personal use would be unlikely.
New vehicles under 6,000 pounds of GVW would have the following depreciation limits including $8,000 of bonus depreciation:
Passenger cars $11,160
Trucks and vans $11,560
Dealers with sales staff that are familiar with these rules should be able to entice business customers to purchase vehicles throughout the year. There will still be increased activity in December as customers do their tax planning. The mad rush with a limited supply of inventory can be avoided by promoting these favorable tax deductions throughout the year.
If you have any questions regarding this article, please contact Paul McGovern at 800-849-6022 or at PMcGovern@DowneyCoCPA.com.
