If you purchase a vehicle to use in your business, you can claim a tax deduction for depreciation. In the year you place the vehicle in service, you could also claim the section 179 deduction and additional first-year bonus depreciation. But passenger vehicles are subject to limits on the overall amount of depreciation you can claim, including the section 179 deduction and additional depreciation the first year. The maximum amount you can claim depends on the type of vehicle.
There are basically two classes of vehicles for purposes of determining the depreciation limitations. One class is passenger vehicles with a gross vehicle weight of up to 6,000 pounds. The other class is trucks, vans, and SUVs up to the same weight.
According to the IRS, for purposes of the limitations, passenger vehicles do not include ambulances, hearses, vehicles used in the business of transporting persons or property for pay or hire, or trucks or vans that have been modified and are not likely to be used more than a minimal amount for personal purposes.
The Tax Relief Act of 2010 extended the additional first-year bonus depreciation of up to $8,000 for vehicles placed in service before January 1, 2013. So you can still claim this bonus depreciation for a vehicle you placed in service in 2012, if you choose to.
The maximum amounts you can claim for depreciation each year for passenger vehicles, and light trucks, vans, and SUVs are adjusted for inflation. The IRS published the maximum limits for vehicles placed in service in 2012 in Internal Revenue Bulletin: 2012-14. The limits for passenger automobiles are $11,160 for the first year, $5,100 for the second tax year, $3,050 for the third tax year, and $1,875 for each tax thereafter. If you decide not to claim the first year bonus depreciation of $8,000, the limit for the first year would be $3,160.
The limits for light trucks, vans, and SUVs are $11,360 for the first tax year ($3,360 if you don’t claim bonus depreciation), $5,300 for the second tax year, $3,150 for the third tax year, and $1,875 for each tax year thereafter.
If you use the vehicle completely for business, you can claim the maximum depreciation amounts indicated. If your business use of the vehicle is less than 100% you multiply the limits by your percentage of business use to determine the maximum amount you can deduct.
If you lease a vehicle for your business, you can deduct the lease payments. But you may have to include an amount in income if the lease payments exceed certain limits. You can find these amounts in tables in Internal Revenue Bulletin: 2012-14
