Higher deduction allowed
If you acquire and place into service a new or used passenger vehicle in 2022 and use it over 50% for business, you can depreciate up to $19,200 if you elect to claim first-year bonus depreciation. This is an increase from last year’s amount of $18,200. Even if you choose not to claim the bonus, the first-year deduction is $11,200. The new law also allows you to take the bonus depreciation for a used automobile as long as you or your business has never used it.
You should also note that the above vehicle depreciation caps do not apply to trucks, vans or SUVs rated at 6,000 pounds loaded gross vehicle weight. For example, if you purchase an SUV costing $70,000 and use it 60% for business, you could potentially deduct $56,000 of depreciation for that first year! All tax rules have their quirks, so make sure to give me a call if this sounds like something you might be considering.
If you have purchased a vehicle for your business, here’s how
much you can deduct on your business tax return:
| Year | With Bonus Depreciation | Without Bonus Depreciation |
| 1st Tax Year | $19,200 | $11,200 |
| 2nd Tax Year | $18,000 | $18,000 |
| 3rd Tax Year | $10,800 | $10,800 |
| Each Succeeding Year | $6,460 | $6,460 |
Updated Electric Vehicle Credit
It may seem the IRA of 2022’s $7,500 tax credit for purchases of new electric vehicles is just a continuation of a credit that was already available, but the legislation made many substantive changes. The credit is now known as the clean vehicle credit, and the IRA of 2022 placed several restrictions on the credit that may make it difficult for some buyers of electric vehicles to take advantage of it.
The changes expected to have the broadest impact include caps on the taxpayers’ income eligible for the credit, a limit on the retail price of qualifying vehicles and new sourcing requirements. Starting in 2023, only households with incomes of up to $300,000 qualify for the credit, with the credit limited to individual taxpayers with incomes below $150,000. Additionally, only battery-powered cars priced at less than $55,000 are eligible, or $80,000 for vans, SUVs and trucks. Finally, the vehicle’s final assembly must have been in North America, and its constructed materials must meet specified sourcing requirements.
Disclaimer:
Tax laws are ever-changing, adjusting or being phased out. Please be aware that some articles may have information that has been subject to such adjustments. We continue to curate articles and content regularly but may miss some content updates from time to time. Please contact us for clarification if there are any questions regarding specific tax laws addressed in the content, and we can discuss them in more detail.