Updated November 2018 with new tax law information

The new tax law has many new things that could impact small business owners. Let’s go over the changes to the bonus depreciation and how it may benefit you.

What Is The Bonus Depreciation?

Business owners can use the bonus depreciation to deduct a large amount of a new long-term asset’s cost in a single year.

 

Bonus depreciation enables a business owner to deduct in a single year a substantial amount of a new long-term asset’s cost. In recent years, the bonus depreciation amount has been 50%, enabling half an asset’s cost to be deducted in one year. This bonus depreciation expired at the end of 2014. Congress has extended it through 2019.

The bonus depreciation percentage will be gradually phased down as follows:

  • 50% for 2015 through 2017
  • 40% in 2018
  • 30% for 2019.

Business owners who calculate their mileage deduction using the actual expense method instead of the standard mileage rate may take advantage of bonus depreciation. There is an annual cap on how much depreciation a car or truck owner may claim each year.

The annual cap in 2015 for regular depreciation on a passenger automobile is $3,160. The cap is $3,460 for trucks and vans. However, because the bonus is now available for 2015, the cap has been increased by $8,000, to $11,160 or $11,460 for taxpayers who claim the bonus.

Bonus Depreciation For Luxury Automobiles

The new law changed the depreciation limits for new and used passenger vehicles that are placed in service after December 31,2017. If you don’t claim the bonus depreciation, the largest depreciation deduction is:

  • $10,000 for the first year
  • $16,000 for the second year
  • $9,600 for the third year
  • $5,760 for each later taxable year.

The limits change if you claim the 100 percent bonus depreciation:

  • $18,000 for the first year
  • $16,000 for the second year
  • $9,600 for the third year
  • $5,760 for each later taxable year.

Get MileIQ to start tracking your miles »

Do I Still Need To Track Mileage If I’m Taking A Bonus Depreciation?

Yes. The IRS allows taxpayers to deduct a large portion of vehicles if they’re used at least 51% for business. You can claim the 100% deduction if you use that vehicle only for work.

But, most people use a personal vehicle for some personal drives. A mileage-tracking app like MileIQ helps you keep diligent mileage logs to prove to the IRS what drives are business and what are personal.

depreciate equipment if it’s used for business. For cars, that means

How To Use The Bonus Depreciation

You can use bonus depreciation for a car or truck provided you buy it new and use it at least 51% for business. The cap is reduced by the amount of your personal use—for example, if you purchased a car any time during 2015 and used it 75% for business, you can claim a $6,120 depreciation deduction for 2015.

You can take a full bonus deprecation deduction so long as you purchased a car and placed it in service in your business any time during 2015—even the last day of the year.

If you use the standard mileage rate to calculate your mileage deduction, you get no separate deduction for depreciation because it is already included in the standard mileage rate (57.5 cents per mile in 2015). So bonus depreciation doesn’t apply. For those who do use the actual expense method to calculate their deduction, this extension is a nice … well … bonus.

Stephen Fishman

Stephen Fishman

Stephen Fishman is a self-employed tax expert and regular contributor to MileIQ. He has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for entrepreneurs, independent contractors, freelancers and other self-employed people. He is the author of over 20 books and hundreds of articles, and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Visit Fishman Law and Tax Files for more information on his work.
Stephen Fishman