Taxes and Turbos: New Car Deductions

Disclaimer: TireBuyer does not provide tax advice. This material has been prepared for informational purposes only, and is not meant to be a replacement for professional tax advice. You should consult your own tax advisor before engaging in any transaction.

Does tax season make you cringe? You’re not alone. In fact, according to a recent poll, more than half of Americans think filing their taxes is stressful. However, if you bought a car this past year, you might have some added concerns about optimizing your refund.

Your recent vehicle purchase shouldn’t make you ready for a straight-jacket come tax season. Having questions about what you can and can’t deduct is common.

When it comes to the tax-filing process, there are various ways you can hedge the accompanying stress. Furthermore, if you purchased a vehicle in 2018, there are some additional considerations.

Before delving into what you can do to find more deductions, it’s important to remember that every tax case is different. So, even though you can make some new car deductions, it might not be in your best interest. For instance, if your new vehicle is primarily for personal use, you may be better off taking another route.

Let’s take a look at some tax-filing particulars involving your past-year vehicle purchase. A fair amount is involved, so considering your options is paramount to receiving the maximum refund allowed by law.

Taking into account the changes from the “Tax Cuts and Jobs Act” (TCJA) enacted on January 1, 2018, there are several different ways you can deduct your 2018 vehicle purchase on your tax return this year.

SUVs & trucks

If you purchased a full-size SUV that weighs more than 6,000-lbs. or a truck in 2018, you can deduct up to 100% of the sales price. Additionally, writing off the full cost of your vehicle is possible even if you didn’t pay for it in full. You may have put a deposit down on your vehicle and have make monthly payments. You may still be able to write off the full amount of your car purchase.

The amount you can write-off hinges on how much you use your vehicle for business. So, if you bought a pick-up truck for $50,000 in 2018 and used it for business 99% of the time, you’re eligible to deduct $49,500. Alternatively, if you only use your newly bought vehicle for business half-the-time, then $25,000 would be the ceiling for your deductible amount.

Passenger cars & first-year depreciation bonus

Although the amount you can deduct becomes significantly lower regarding passenger cars, thanks to the TCJA, you can still get a good break on this vehicle type. As a matter of fact, the TCJA increased the first-year allowance for claiming your automobile’s depreciation from $10,000 to $18,000 in 2018.

The first-year allowance mentioned above now applies to used vehicles too. In the past, an allowance for older vehicles was not allowed. Of course, regardless of age, your new car, truck, or SUV must be a recent acquisition; you can’t claim a vehicle used by you or your business prior to December 31, 2017.

Sales tax deductions

Deducting vehicle sales-tax is one of several options when trying to get a tax break from your new ride. However, there’s a significant stipulation that comes along with deducting your sales tax.

If you choose to deduct the sales tax for your new car, you can’t claim the overall state income-tax deduction. In other words, deducting the sales tax accrued when buying your new car voids state income tax deductions across the board.

Therefore, claiming a sales tax deduction on your 2018 tax-return is only beneficial in some cases. For example, if the sales tax amount you accrued in the past year outweighs the state income tax you’d otherwise be paying, this option could be advantageous. If this situation represents your current position, then some further investigation is necessary.

Accordingly, having possession of all receipts surrounding the sales tax of your recent vehicle purchase is fundamental – especially when deducting its sales tax. After all, if you lack supporting documentation and try to deduct the sales-tax of your vehicle, you could find yourself swimming in the soup in the face of an audit.

Taking everything into account

All things considered, there are a variety of options when trying to deduct your new vehicle on your tax refund. And, as we’ve seen, claiming deductions on your newly purchased vehicle is circumstantial at best. So, it’s crucial you understand the in-and-outs of filling out your 2018 tax-return. Otherwise, you might find yourself in a quandary, paying more than you should come tax time.

Disclaimer: TireBuyer does not provide tax advice. This material has been prepared for informational purposes only, and is not meant to be a replacement for professional tax advice. You should consult your own tax advisor before engaging in any transaction.

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