Bonus Depreciation, safe-harbor rules issued for vehicles (and 4 other tax provisions business owners need to know about using their cars for work)

The IRS has recently provided a safe-harbor method to determine depreciation deductions for passenger automobiles that qualify for the 100% additional first-year depreciation deduction and that are subject to the depreciation limitations for passenger automobiles under Sec. 280F. More on that will follow below in this article, but the issuance serves as a good reminder to us that many things changed for the better under tax reform when it comes to small business owners using their cars for business. Here are 5 tax provisions every small business owner should understand about using their car for work.

Section 179 Expense Deduction

Section 179 is a tough nut to crack, and that’s why we’ve covered it so much in the past. Here, however, we’ll talk about it as it relates to vehicles.

If you purchased a new car in 2018 and use it more than 50% for business use, this deduction is for you. Under Section 179 you can immediately deduct (rather than depreciate) the cost of certain property in the year it is placed into service. For the 2018 tax year, the Section 179 expense deduction increases to a maximum deduction of $1M of the first $2.5M of qualifying equipment placed in service during the tax year. (Note, it is indexed to inflation for tax years after 2018.)

For SUVs, defined as a 4-wheel passenger vehicle between 6,000 and 14,000 pounds, the maximum deduction is $25,000. This number is also linked to inflation.

Certain restrictions apply, however, such as a seating capacity of more than 9 and vehicles weighing more than 14,000 pounds — both of those are likely “work vehicles” and not used for personal reasons. Accordingly, there is no expense deduction limit there. Using bonus depreciation and/or Section 179, you may be able to deduct all or most of the cost of such a vehicle in a single year. This is a potentially enormous deduction for business people who purchase heavy SUVs and similar vehicles for their business.

Additional First-Year Bonus Depreciation for Passenger Vehicles

The Tax Cuts and Jobs Act (TCJA) permits additional first-year depreciation (bonus depreciation) for qualified property, which includes passenger automobiles, acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2027.

Yesterday, the IRS provided a safe-harbor method to determine depreciation deductions for passenger automobiles that qualify for the 100% additional first-year depreciation deduction and that are subject to the depreciation limitations for passenger automobiles under Sec. 280F.

Deductions under Sec. 179, which provides an election to expense certain depreciable business assets, are also subject to Sec. 280F when they involve passenger automobiles. The safe harbor does not apply when the taxpayer elects Sec. 179 treatment.


Here’s what changed yesterday:

For a passenger automobile that qualifies for the 100% additional first-year depreciation deduction, the TCJA increased the first-year limitation amount by $8,000 to $18,000. If the depreciable basis of a passenger automobile for which the 100% additional first-year depreciation deduction is allowed exceeds the first-year limitation in Rev. Proc. 2018-25, the excess amount is deductible in the first tax year after the end of the recovery period.

The safe harbor allows depreciation deductions for the excess amount during the recovery period subject to the depreciation limitations that apply to passenger automobiles. To implement the safe-harbor method, the taxpayer must use the depreciation table in Appendix A of IRS Publication 946, How to Depreciate Property. The safe-harbor method does not apply to a passenger automobile placed in service after 2022, one for which the taxpayer elected out of the 100% bonus depreciation, or one for which the taxpayer elected under Sec. 179 to expense all or part of the automobile’s cost.

To adopt the safe-harbor method in the revenue procedure, taxpayers apply it to their depreciation deduction for a passenger automobile on their return for the first tax year following the placed-in-service year.


First-Year Bonus Depreciation for Heavy Vehicles

Heavy vehicles (new or used) placed into service after September 27, 2017, and before January 1, 2023, qualify for a 100% first-year bonus depreciation deduction as well, if business-related use exceeds 50%. These deductions are based on the percentage of business use, and vehicles used less than 50% for business are required to depreciate the vehicle cost over a period of six years.

Luxury Auto Depreciation Allowance

Luxury passenger vehicles placed into service after December 31, 2017, can be depreciated to a maximum amount as follows:

  • $10,000 for the first year
  • $16,000 for the second year
  • $9,600 for the third year
  • $5,760 for the fourth year and onward

Deductions are based on the percentage of business use. In other words, a business owner who uses the vehicle for work 100% of the time can take the full deduction while an owner who only uses the car for work a certain percentage of time can take less. These amounts are also indexed for inflation.

Unreimbursed Expenses for Business Use of a Vehicle

Now, here’s the bad news. Under tax reform, miscellaneous itemized expenses, including unreimbursed expenses for business use of a car, were eliminated. So, starting in 2018, if you are an employee who is required to use your own vehicle for business-related use and are not reimbursed for these expenses by your employer, you’re out of luck. You can no longer claim a deduction for such expenses on your tax return.

These are complicated matters, and we don’t recommend that you tackle them alone. Feel free to give us a call to discuss your situation. We’re happy to help.

Interested in learning more ways the TCJA changed the tax code for individuals and businesses? Download our FREE guide to tax planning here.




  1. Amy Manweiler says:

    Very informative article!

  2. Good article, I bought a Ram 1500 truck at end of 2018 based on this new 100% heavy vehicle depreciation. Now it has depreciated 100% and I took that as a deduction on my taxes.

    Now do I need to buy another new truck and deduct it 100% again for next year in 2020 tax season?


    • Richard Blum says:

      Yes, that would reduce your 2019 tax as long as you do NOT sell or trade-in the RAM 1500 truck that you bought in 2018.

      • Hi, can you please explain this further? What is the issue with trading in your 2018 SUV for a new one in 2019 to take advantage of this?

        • Richard Blum says:

          Like-kind exchange treatment is no longer allowed for personal property. The FMV of the vehicle traded in is the sales price for calculation of the gain. However, this sales price is added to the basis of the new asset and you are allowed to add the sales price to the basis of the new asset and to take bonus on the additional amount.

  3. This is very information. Are you able to link to the IRS source material. I am considering buying a Tesla X (gvm exceeds 6,000lb) and will use our more than 50 percent for business use).

    • Richard Blum says:

      Hi Mark,

      It would just be Section 168 and Section 179 of the Internal Revenue Code. You can access both with a quick search.

      Thanks for reading!

  4. Brian P Anderson says:

    What is the criteria for a Heavy Vehicle in “First-Year Bonus Depreciation for Heavy Vehicles” Would a Yukon XL qualify?

    • Richard Blum says:

      Hi Brian,

      Yes, under the TCJA, new and pre-owned heavy SUVs, pickups, and vans acquired and put to business use in 2018 are eligible for 100% first-year bonus depreciation. The only requirement is that you must use the vehicle more than 50% for business. If your business usage is between 51% and 99%, you can deduct that percentage of the cost in the first year the vehicle is placed in service. This tax break is available for qualifying vehicles that are acquired and placed in service between September 28, 2017, and December 31, 2022.

  5. We purchased a used heavy vehicle over 6,000 pounds this year and are using it over 50% for business this year, 2019. If we take the 100% first-year bonus depreciation for 2019 and it is used less than 50% for business in 2020, how will that affect our 2020 taxes?

    • Richard Blum says:

      If it is listed property you have to recapture the depreciation as ordinary income in 2020.

      Thanks for reading!

      • I am planning to purchase a classic car to use 100% for business travel and business advertising. It will have company graphics on it advertising a car related business that I work for.
        What is the most advantageous tax deduction approach, when I am not reimbursed by the employer?

  6. Does section 179+bonus depreciation rules are still good for 2019 tax year? and does all SUVs over 6000 lb & under 14000 lbs qualify? since some of the blogs have some specific model/trim only not all models of various SUV!
    Thanks for your time.

  7. Jacqueline Scrio says:

    If I purchased a new F250 on December 28, 2018 and placed in service for our small business in January 2019. Can we take the first-year bonus depreciation in 2019. I am not sure if it has to be purchased AND put in service in 2019 to qualify. Thank you for your guidance.

  8. Elias Iglesias says:

    Is the 100% first year bonus on heavy suv’s limited to 25,500 for 2019?