Vehicle Tax Benefits: 2022 vs 2023 (Part 1)

Oct 25, 2022

Should You Buy That Car For Your Small Business In 2022 Or Wait Until 2023?

Part 1: Depreciation

You may or may not have heard that 100% Bonus Depreciation is scheduled to end on December 31, 2022.  It will be reduced to 80% in 2023 and will decline 20% every year thereafter, through 2027, when it will be zero.

So what does this mean for your decision on buying a car in 2022 versus waiting until 2023?  There are different rules for different categories of cars, so I'll break it down by category...

Passenger Automobiles (all vehicles with a GVWR of 6,000 lbs or less)

Bonus depreciation is limited to $8,000 for such tax code–defined passenger automobiles no matter how much they cost. This limit will be the same in 2023. So there is no point in purchasing a defined 'passenger automobile' in 2022 instead of 2023 to take advantage of bonus depreciation.

SUVs and Other Heavy Vehicles (GVWR < 6,000 lbs)

You may use 100 percent bonus depreciation on trucks, vans, SUVs, and crossover vehicles with a GVWR of 6,001 pounds or more in 2022, but that drops to 80% in 2023.  

With that said, you can use Section 179 in combination with the 80 percent bonus depreciation in 2023 to make up some of the difference.  

Example: Bart purchases a $50,000 SUV in 2023 and uses it 100 percent for business, which makes for easy numbers. He deducts $28,900 with Section 179 expensing and then $16,880 with 80 percent bonus depreciation (80 percent x $21,100 = $16,880). He depreciates his remaining $4,220 basis using the 200 percent declining balance method, resulting in an $844 deduction. His total deduction is $46,624 ($28,900 + $16,880 + $844).

Had Bart purchased the SUV in 2022, he would have gotten a $50,000 deduction using 100 percent bonus depreciation.

Pickup Trucks With a Bed Length of at least 6 ft

(and commercial vans, but those aren't as sexy...)

The Section 179 expense is similar to bonus depreciation in that it allows businesses to write off (expense) asset purchases in the year they are placed in service.  There are, however, some notable rules for Section 179, especially those limiting its use for the purchase of automobiles. 

The key for pickup trucks with a bed length of at least six feet (and vans that seat more than nine behind the driver) is that the Section 179 limit does not apply to this category, so it can be used in place of Bonus Depreciation, as long as the business is still showing a profit, since (unlike Bonus Depreciation) Section 179 cannot be used to bring business profit below zero.  

Key Takeaways

  1. Don't ever buy a vehicle just for the tax benefits.  Think of the tax benefits as a discount on the expense, but remember that the expense itself it still significant.
  2. If you are buying a heavy SUV or short-bed truck, you'll likely be able to take more depreciation in 2022 than in 2023
  3. Electric Vehicles (EVs) are an altogether different discussion because of their eligibility for tax credits on top of the depreciation.  I'll be diving in to EVs in Part 2, coming soon...

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