Buying a new car for business use may offer significant tax advantages. In some cases, consulting with a tax professional could reveal opportunities to immediately deduct up to 100% of the purchase price on eligible vehicles. However, there may be some important quirks worth knowing about with tax deductions on cars.
First, it's important to note that the following information shouldn't be considered tax advice and business owners should speak with a CPA for the latest details on tax law changes. Second, your first-year vehicle depreciation limits may depend on the type of vehicle you purchased new in the applicable tax year.
According to a bulletin sent to GM dealers, the deductions in question pertain to Section 179 of the Internal Revenue Code for vehicles with a "GVWR over 6,000 lbs. and placed in service during 2021." GVWR means gross vehicle weight rating, which may offer a big advantage when choosing an SUV over a passenger car.
For example, Buick says models like the Encore GX and Envision may be eligible for up to an $18,200 total tax deduction. In the case of the larger Enclave SUV, the company says that up to 100% of the purchase price may be deductible, with no per-vehicle or aggregate limitation on popular luxury models for 2021.
For GMC, the $18,200 total deduction limit is available on the Canyon pickup and Terrain crossover. Other GMC models like the Sierra 1500, Yukon, and more offer the chance to deduct up to 100% of the purchase price. We've seen similar documentation from BMW, too, promoting potential tax savings around this time on cars.
New car incentives are down across the industry and more automakers have been paying customers to wait. Given the many changes and assistance programs rolled out over the course of the coronavirus pandemic, now may be a good time to begin thinking about which deductions to claim with a tax professional.