Writing Off an Old Vehicle in a New Business
If you have an old car sitting in your driveway, you might be sitting on an unexpected tax deduction! When starting a business, you can place your existing vehicle into service and deduct its fair market value (FMV)—potentially saving thousands on taxes.
How It Works
Instead of using the original purchase price, the IRS allows you to claim the current fair market value (FMV) of your vehicle when you begin using it for business.
Steps to Deduct Your Vehicle:
- Determine FMV: Use Kelley Blue Book or a similar valuation tool.
- Example: If you bought a car for $20,000 three years ago but it’s now worth $12,000, you start with the $12,000 FMV.
- Choose a Depreciation Method:
- Section 179 Deduction: If the vehicle is used over 50% for business, you may deduct the full FMV in the first year.
- Bonus Depreciation: In 2023, you can deduct 80% of the vehicle’s value (this percentage phases down each year).
Ongoing Deductible Expenses
Once your vehicle is in service, you can also deduct:
- Fuel costs
- Repairs and maintenance
- Insurance premiums
- Car washes and upkeep
Real-World Example
Maria started a catering business in 2023 and used her 2018 SUV for deliveries. The FMV of her vehicle was $15,000. By using Section 179, she deducted the full $15,000 plus $5,000 in gas and maintenance costs. Her total tax savings: $6,000!
Conclusion
If you’re launching a business and already own a vehicle, don’t miss out on these tax deductions. Proper documentation and the right depreciation method can lead to substantial tax savings.
Need help maximizing your vehicle deductions? Call Guerrero CPA at 210-490-7100. Our team will ensure you take full advantage of IRS rules without the hassle.