Does your organization use company vehicles for business operations? If so, you may be eligible for an income tax deduction.
The IRS offers several different deductions for various business vehicles. But these deductions don’t only relate to obvious work vehicles like ambulances, hearses, moving trucks, or utility vans. Many vehicle models are eligible for a deduction as long as they meet specific IRS requirements.
In this guide, you’ll learn about the Best Vehicles for Income Tax Deduction. So let’s get to it.
- 1 10 Best Vehicles to Consider for a Section 179 Deduction
- 2 Hybrid Credit
- 3 IRS Section 179 Vehicle Tax Deductions Explained
- 4 Claim Your Income Tax Deduction With These Vehicles
- 5 Learn More
10 Best Vehicles to Consider for a Section 179 Deduction
Now that you understand how the Section 179 deduction works let’s look at some vehicles that qualify for the deduction.
Before jumping in, it’s important to note that you should always consult with your accountant or tax advisor before purchasing one of these vehicles. This list doesn’t guarantee a tax deduction.
Since the GVWR can change with trim packages and other options, you want to ensure the vehicle you want to buy meets the qualifications before buying it.
1. BMW X5, X6 or X7
The X5, X6, and X7 just barely make the weight classification for a deduction. Yet, they are each a great option to consider if you’re looking for a luxury vehicle that won’t break the bank.
If you’re driving for business, the X6 may be a better choice since it’s faster, more powerful, and has a sporty look. But if you need the space, opt for the X5 or X7.
If you’re looking for even more luxury, consider the Porsche Cayenne.
2. Cadillac Escalade
The Escalade is a well-known luxury SUV, and for a good reason. It’s plushy, comfortable, and has a huge cargo capacity. Though it’s not quick, it’s powerful and handles rough rides well.
Plus, the new 2022 model offers lane-keep assist, a top-of-the-line driver assistance system.
If you’re looking for a smaller Cadillac that still meets the deduction requirements, consider the XT5 or XT6.
3. Chevy Suburban or Tahoe
Chevrolet is not a brand you think of when it comes to luxury. But Chevy’s SUVs are popular because they are spacious and safe. In fact, you can add armor to these vehicles and still get your tax write-off.
One of the major differences between the Suburban and Tahoe is the fuel capacity. The Suburban holds more gallons of gas because the Chevy Tahoe is slightly smaller.
If you’re looking for the most savings, consider the Traverse. The sticker price is less, and it has better fuel efficiency.
Those looking for a pickup truck should check out the Silverado instead.
4. Ford Expedition
Similar to Chevrolet, Ford is not a luxury auto brand. But Ford also has a great line of SUVs and pickup trucks. The Expedition is Ford’s most powerful SUV with robust towing capabilities.
If you want something a little smaller than the Expedition, consider the Explorer. The Explorer holds seven people, while the Expedition holds eight. The right choice comes down to your personal needs.
Additionally, the F-150, which now comes in an electric (EV) model, is an excellent choice for a pickup truck.
5. Jeep Grand Cherokee
Another American favorite is Jeep. The Grand Cherokee costs less than many other vehicles on this list. However, while it’s great for handling rugged roads, its all-wheel drive isn’t standard.
But, Jeep is getting into the EV game as well. You can opt for a pricier, eco-friendly option if you choose.
6. Land Rover Range Rover
Land Rover is ready to wow users with its new 2022 Range Rover. The company says it took out 125 patents for the new car and carried out a rigorous development program.
Plug-in hybrid models are also available.
But with all this comes a hefty price tag. So be ready to spend at least $90,000 on a basic model.
If you want the Land Rover name without the huge expense, consider the Discovery, which starts at around $54,000.
7. Mercedes GLS or GLE
Mercedes has several models that fit into the Section 179 deduction. The GLS is larger and more powerful than the GLE, especially in older models.
But both vehicles have high-tech features like brake assist, lane assist, and blind-spot assist.
Another popular Mercedes model is the Benz G-Class (G wagon). It’s a very trendy car that’s popular with influencers.
However, if you’re looking for a Mercedes van, think about the Metris or Sprinter.
8. Nissan Armada
The Nissan Armada is surprisingly luxurious despite Nissan not being a luxury brand. It offers a smooth ride and a comfy cabin.
However, the fuel economy lags behind most other vehicles, and the SUV tends to wander at high speeds.
If you want a Nissan pickup truck, consider the Titan.
Nissan also has a great fleet of work vans, such as the NV 1500 or 2500.
For those that need a lot of space to carry passengers, the NVP 3500 seats 12!
9. Tesla Model X
The Model X is Tesla’s first SUV.
Compared to other similarly sized all-electric SUVs, the Model X has the highest MPGe rating at around 102. And its battery claims an impressive 351-mile driving range.
Plus, recharging is quick when you use one of Tesla’s Superchargers, which you can find across the country.
However, its starting price is significantly higher than similar SUVs. So be prepared to spend at least $115,000 on a new 2022 model.
10. Toyota 4Runner
Toyota has long been an affordable and reliable automaker. The 4Runner lives up to its rugged image and comes packed with driver-assistance technology. In addition, users love the passenger and cargo space.
But, the fuel economy is not the best.
Luckily Toyota has other qualifying models to consider, such as the Landcruiser, Sequoia, and Tundra.
Now that you learned about Best Vehicles for Income Tax Deduction, Lets learn more about other tax deduction and credits pertaining to your business vehicles.
It’s worth mentioning that another type of deduction is available for hybrid vehicles.
The Qualified Plug-In Electric Drive Motor Vehicle Credit is worth between $2,500 and $7,500. The credit is nonrefundable. The IRS determines the amount based on the power storage of the battery.
It applies to the following:
- Plug-in hybrid vehicles (PHEV)
- Plug-in electric vehicles (EV or PEV)
However, traditional hybrid electric vehicles (HEV) do not qualify. This applies to the following non-plug-in models:
- Toyota Prius
- Toyota RAV4 Hybrid
- Toyota Camry Hybrid
- Ford Fusion
- Honda Insight
- Honda Accord Hybrids
It’s worth exploring the hybrid tax credit in addition to the Section 179 deduction for more savings since many of the cars on the list come in hybrid models.
However, it’s best to check with a tax consultant to learn if you can claim both the credit and deduction on one vehicle, especially since regulations change frequently.
IRS Section 179 Vehicle Tax Deductions Explained
If you run a business or are self-employed, the IRS allows you to write off business vehicle expenses and costs. When you buy business equipment or other lasting items, like a vehicle, you usually deduct portions of the cost over time through depreciation.
But, the Section 179 deduction allows you to deduct the total purchase price bought (or financed) if you started using it during the same tax year.
In 2021, the deduction limit was $1,050,000.
While this seems like a huge deduction limit, it makes more sense when you consider the costs of equipment like fire trucks, farm tractors, and utility vans.
Here are the types of vehicles that are eligible for a Section 179 tax deduction:
- Heavy SUVs, Pickups, and Vans (with a GVWR over 6,000 lbs) that are more than 50% business-use
- Work vehicles that have no personal use (i.e., a plumbing van)
- Delivery vehicles with no passenger seating, such as a cargo van or box truck
- Specialty singular-use vehicles (i.e., an ambulance)
The Gross Vehicle Weight Rating (GVWR) is the max loaded weight of your vehicle with passengers and cargo.
Additionally, the vehicle must be paid for by your business and titled under your business’s legal name. You also need to insure the vehicle in the company. To do this, your business needs a good credit score and readily available financing.
If you purchase a vehicle that falls into this eligibility, you could receive a 100% deduction in the first year. Conversely, passeger automobiles only qualify for a deduction of up to $18,200 regardless of the sticker price.
There are two ways to apply the Section 179 tax deduction. They are the actual expenses deduction and the mileage rate deduction.
Actual Expenses Deduction
Under the Section 179 deduction, you can write off all the direct costs of a vehicle, such as:
- Interest expenses on financing
- Lease expenses
- Maintenance (i.e., tires)
- Gas and oil
- Fees (i.e., parking and registration)
- Garage rent
The deduction also includes depreciation. As a result, you speed through your expected losses faster by taking advantage of accelerated depreciation.
This is helpful during a year when your business made a lot of income.
If you buy a business vehicle for $60,000, with normal depreciation, you will deduct about 20% each year over the next five years.
But with accelerated depreciation, you can take the entire $60,000 deduction in the first year.
Essentially, you can erase your taxable income and buy a car without paying any taxes. Yes, you read that right.
You can buy the car tax-free! As long as you follow the eligibility carefully, you can get a 100% income tax deduction.
There is another type of deduction for work vehicles that don’t meet the 50% threshold for business mileage.
Instead, you can deduct $0.585 (58.5 cents) per business mile driven in 2022. Of course, this is not nearly as great as the actual expenses deduction, but it’s still something if you’re using a work vehicle.
The standard mileage rate deduction calculates how many business miles you drove and figures the deduction based on that number.
Business mileage includes driving to visit clients or attend meetings. It doesn’t include commuting miles from your home to the office. The IRS requires you to keep a detailed log of all your driving to qualify for the mileage deduction.
Business mileage also doesn’t include using your vehicle for advertising.
If you use this deduction, you can’t include other costs related to your vehicle except for business-related tolls and parking fees.
After the first year, you can continue to choose the standard mileage deduction or the actual expenses deduction.
But, if you’re leasing the vehicle, you cannot switch the deduction you claim. Instead, you must continue with the standard mileage deduction for the entirety of the lease. This includes renewals.
The IRS has restrictions on the mileage rate deduction. You cannot do the following:
- Operate five or more cars (i.e., run a fleet of delivery vehicles)
- Use other methods other than a straight line to claim a depreciation deduction
- Have already claimed a Section 179 deduction of special depreciation allowance
- Have already claimed actual expenses on a leased car after 1997
Is Section 179 Only for New Vehicles?
To be eligible for a Section 179 deduction, the vehicle must be new or new to you. This means new and used vehicles are eligible for a Section 179 deduction.
Additionally, if you bought the vehicle in 2020 but didn’t start using it for business until 2021, it doesn’t qualify for a deduction. You must purchase (or start financing) and begin using the vehicle for business in the same year.
Can You Finance a Vehicle and Take a Deduction?
Yes, you can finance a vehicle and still take the deduction. Financing is an effective method to get the vehicle you need while saving on taxes. It’s a standard option for the self-employed and small business owners.
Can You Resell the Vehicle for a Gain?
While you can resell the vehicle for a gain, you would have to pay back the depreciation through depreciation recapture. This could cost you a lot of money.
Don’t misuse the tax benefit of Section 179 to try to make money because it won’t work, and you’ll end up with a significant loss.
Claim Your Income Tax Deduction With These Vehicles
Now that you have learned more about Best Vehicles for Income Tax Deduction, You can claim an income tax deduction on your work vehicle when you follow this guide. But be sure to work with a tax advisor to guarantee you qualify for a deduction first.
Are you looking for more information about business taxes? Head over to the Business section, where you’ll find new articles posted regularly. Don’t forget to bookmark our page so you don’t miss any new content.