2022 Last-Minute Vehicle Purchases to Save on Taxes

It’s that time of year again: tax time. Businesses across the US are gearing up for the grueling task of limiting their liability, maximizing tax deductions, and protecting their profits. There’s good news, though. A vehicle purchase now could give you the replacement business car, SUV, van, or pickup truck you need, while offering additional tax deductions and tax credits to offset what you owe the IRS.

Of course, you’ll need to know a few things to claim these benefits. Below, we’ll address some of the key considerations.

How Does Buying a Vehicle Change My Business’s Tax Liability?

The key to saving on taxes with a last-minute vehicle purchase is the Tax Cuts and Jobs Act (TCJA). The Act allows business owners to write off the cost of a vehicle purchase in 2022, and, in many cases, 100% of the vehicle’s price tag. If you’ve been thinking about going electric or even buying a hybrid, you may be able to save more money – up to $7,500.

Now’s the Time

There’s a very good chance you could save thousands of dollars on taxes while getting the vehicle your business needs. However, you need to act quickly. You must own the vehicle and have it in business service on or before December 31, 2022, so you have a very small window.

What does “placed in business service” mean, though? Simply put, you need to have driven at least one business mile on or before December 31.

Buying a New or Used Van, SUV, or Crossover

Want to save up to $27,000? Just buy a new or used crossover, SUV, or van that the automaker classifies as a truck on or before December 31, 2022. It must have a gross vehicle weight of at least 6,001 pounds.

That purchase means you’re able to elect bonus depreciation of 100% under the TCJA. You can also choose Section 179 expensing up to $27,000 and you get MACRS depreciation using the five-year table, as well as no luxury limits on vehicle depreciation deductions.

Don’t want 100% bonus depreciation in 2022? You just need to opt out of bonus depreciation for that property class, expense any percentage of the business cost up to $27,000 using Section 179, and then take the remaining cost using MACRS depreciation over five years.

What about Pickup Trucks?

We omitted pickup trucks from the example above for one good reason: things are a little bit different. You’re able to save even more money on your business taxes here if you purchase a qualifying new or used truck.

You’re able to take advantage of bonus depreciation of up to 100% of the purchase price. You also get to expense up to $1,080,000 under Section 179, benefit from MACRS depreciation using the five-year table, and avoid any luxury limits on vehicle depreciation deductions.

Of course, you want to make an informed decision when it comes to your business purchase. So, what type of pickup truck qualifies? It must weigh over 6,000 pounds and it must have a bed that measures at least six feet long (interior measurement). The bed cannot be accessible from the passenger compartment, either.

But what if you don’t want, can’t use, or can’t find a truck with a six-foot bed? If the bed is under six feet, the US tax code qualifies the vehicle as an SUV, which means you’re still eligible for the deductions we discussed in the previous section.

Cargo and Passenger Vans

Need to purchase a larger van, one that can carry multiple passengers or maybe haul cargo? You’ll see several critical benefits here, as well. There are no luxury limits on the vehicle, and you get bonus depreciation of 100%. You can also expense up to $1,080,000 under Section 179 and gain MACRS depreciation using the five-year table.

Of course, you’ll find multiple types of vans on the market today and it pays to know how they’re treated under the tax code. For instance, if you’re considering a minivan with a gross vehicle weight of over 6,000 pounds, it’s considered an SUV, so you would gain the deductions discussed within that section.

If you’re considering a passenger van with a gross vehicle weight of over 6,000 pounds and that seats more than nine people behind the driver’s seat, it qualifies as a passenger van, and you’ll get the benefits discussed in this section. That applies to cargo vans that weigh over 6,000 pounds, have a fully enclosed driver compartment separate from the cargo area, do not have any seating behind the driver’s seat, and have no body sections that extend more than 30 inches ahead of the windshield.

EVs

Thinking about buying an electric vehicle or a plug-in hybrid vehicle for your business? You could qualify for a tax credit of up to $7,500. However, the introduction of the Inflation Reduction Act complicated matters for EVs and plug-in hybrids, with even more changes coming down the pike in 2023 and 2024.

In Conclusion

If you want to save your business money when it comes to taxes, mitigate your existing debt to the IRS, or purchase a replacement vehicle for your business, now is the time. The TCJA allows you to write off 100% of your business cost with bonus depreciation if you buy a new or used qualifying vehicle on or before December 31, 2022.

Even if your vehicle doesn’t meet the weight requirement, you may be able to save up to $19,200 in 2022 if it’s purchased and put into service on or before December 31. EVs and plug-in hybrids are also eligible for tax credits, but the situation is more complicated.

Remember – you need to have the vehicle in service on or before that date. This means you need to have logged at least one business mile.

Now is the time to act, though. You have very little time remaining to take advantage of this benefit and reduce your business’s tax liability while getting the vehicle you need.