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2024 Depreciation Limits for Business Vehicles: What You Need to Know

For business owners and entrepreneurs, purchasing or leasing a vehicle for business use can be a valuable asset, but understanding the tax implications is key to maximizing your deductions. The IRS has provided updated depreciation limits for business vehicles placed in service in 2024, offering clarity on how much you can deduct each year.

Depreciation Limits for 2024

The 2024 IRS guidance outlines depreciation limits, including first-year bonus depreciation, for vehicles classified as “luxury” business vehicles. These limits apply to passenger cars, as well as SUVs, trucks, and vans with a gross vehicle weight (GVW) of 6,000 pounds or less:

  • Year One (with bonus depreciation): $20,400
  • Year Two: $19,800
  • Year Three: $11,900
  • Each Year After That: $7,160

It’s important to note that these limits apply to the total depreciation you can claim each year for the vehicle. As with previous years, vehicles considered “luxury” under IRS guidelines are subject to these caps.

Lease Inclusion Amounts for 2024

If you’re leasing a passenger vehicle in 2024, the IRS also announced updated lease inclusion amounts, which reduce your deductible lease expenses based on the vehicle’s fair market value. For more specific information, refer to IRS Revenue Procedure 2024-13 here.

Tax Advantages for Heavier Vehicles

If you’re considering purchasing a heavier vehicle for your business, there may be additional tax advantages. Section 179 expensing allows you to deduct the full or partial cost of certain new or used vehicles in the year they are placed in service.

For 2024, vehicles with a GVW of more than 6,000 pounds but no more than 14,000 pounds (often large SUVs) are eligible for Section 179 expensing, though the maximum deduction is capped at $30,500. This provision offers a significant incentive for purchasing heavier vehicles for business purposes, allowing for a larger deduction upfront compared to “luxury” vehicles.

Important Considerations for Business and Personal Use

If your vehicle is used for both business and personal purposes, the depreciation deduction must be allocated between deductible business use and nondeductible personal use. The limits outlined above are for vehicles used 100% for business purposes. If the vehicle is used less than 100% for business, the depreciation limit is reduced proportionally. Additionally, if the vehicle is used 50% or less for business, you cannot claim bonus depreciation or Section 179 expensing.

Conclusion

Understanding the 2024 depreciation limits for business vehicles and the potential tax advantages of Section 179 expensing can help you make smarter financial decisions for your business. If you’re planning to purchase or lease a vehicle, knowing how to maximize these deductions is crucial. Whether you’re weighing the benefits of heavier vehicles, or need help navigating the allocation of business and personal use, personalized tax advice can ensure you’re optimizing your tax strategy. For expert guidance, contact Guerrero CPA at 210-490-7100. Our team is ready to help you take full advantage of these tax-saving opportunities.