Tax planning

2018 Luxury Auto Depreciation Limits Increasing

Finally, lawmakers did the right thing by increasing the luxury auto depreciation limits on business cars.

The old luxury limits were unrealistic, punitive, unfair, and discriminatory against any car that cost more than $15,800. The new limits don’t create parity in all respects, but they are a big improvement.

If you bought a car in 2017 and paid more than $15,800, you were driving a luxury car that lawmakers punished you for by putting a lid on your depreciation.

For example, say in 2017 you bought a $40,000 car and drove it 100 percent for business. Your maximum depreciation deductions for the first five years would total only $15,060. To fully depreciate this car under the old rules would have taken 19 years.

It was ridiculous to take 19 years to depreciate that $40,000 car. And now, finally, lawmakers have fixed a big part of what the tax code calls luxury automobile limits.

Under the new law, this $40,000 vehicle is fully depreciated in six years. Think about that. Old law: 19 years. New law: six years.

Essentially, the new law sets the so-called luxury automobile limit at $50,000. This means that any vehicle costing $50,000 or less is not penalized by the luxury vehicle limits when using MACRS depreciation.

Under the new law, the annual limits are:

  • Year 1, $10,000
  • Year 2, $16,000
  • Year 3, $9,600
  • Year 4 and each succeeding year, $5,760

What do the new limits mean? Before 2018, many business taxpayers were buying vehicles with gross vehicle weight ratings (GVWRs) greater than 6,000 pounds to escape the draconian roughly $15,000 luxury limits.

Even today, SUVs, crossover vehicles, and pickup trucks can avoid the automobile luxury limits and even qualify for immediate write-offs of the full business cost using bonus depreciation or Section 179 expensing. Cars don’t qualify for unlimited bonus depreciation or any added benefits from Section 179 expensing.

But the big deal in the new realistic luxury auto limits is that there’s far less need to buy the bigger, heavier SUV or crossover vehicle, because of the new higher luxury limits. With a car costing $50,000 or less, you realize 71.2 percent of your total vehicle deductions in the first three years.

If you are thinking of a new or replacement business vehicle and would like to discuss the new rules, contact me at:

IWS announces upcoming publication of The Solo 401k Field Guide and The IRA LLC Field Guide

We're proud to announce the upcoming publication of two exciting, must-have additions to the self-directed investor's library, The Solo 401k Field Guide and The IRA LLC Field Guide. Both of these Field Guides will be released as electronic publications which will include video tutorials from the author, Eric Wikstrom. "Including video along with the text material will enhance the reader's understanding of concepts that are very important for anyone who's going to be self-directing their retirement account. The electronic format will also allow for the Field Guides to remain current so new trends, client stories and any tax law changes can be incorporated, " Wikstrom said. 

The publication of The Solo 401k Field Guide will come first, followed by The IRA LLC Field Guide.  Anticipated publication of The Solo 401k Field Guide is mid-December 2015.