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THURSDAY TAX TIDBITS

Tax Law Changes: Auto Deductions

The biggest change in deducting automobiles is an increased deduction for car depreciation for cars used for business. This change may make business owners consider buying cars versus leasing. With Trump’s tax plan, you can take an $18,000 deduction for a new car the first year you own it. 

Bigger depreciation allowances for passenger vehicles
For both new and used passenger vehicles that are acquired and placed in service after 12/31/17 and used over 50% for business, the Tax Cuts and Jobs Act dramatically and permanently increases the auto depreciation allowances. For vehicles placed in service (put to business use) in 2018, the maximum allowances are:

* $10,000 for Year 1 or $18,000 if you claim first-year bonus depreciation (see below).
* $16,000 for Year 2
* $9,600 for Year 3
* $5,760 for Year 4 and thereafter until the vehicle is fully depreciated

If you don’t use the vehicle 100% for business, these allowances are cut back proportionately. These allowances will be indexed for inflation for 2019 and beyond.

Additional first-year bonus depreciation for passenger vehicles
If you claim first-year bonus depreciation for a new or used passenger vehicle that is acquired and placed in service between 9/28/17 and 12/31/26, the Tax Cuts and Jobs Act increases the maximum first-year luxury auto depreciation allowance by $8,000 (from $10,000 to $18,000 for 2018). However, a used vehicle cannot have been previously used by you or your business entity; it must be new to you or the entity. The $8,000 bump for bonus depreciation is scheduled to disappear after 2026, unless Congress takes further action. Under prior law, used vehicles were ineligible for first-year bonus depreciation.

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