Question

What are the specific rules for a pickup truck to avoid the depreciation limitation

that other cars and SUVs?

Answer 1

Passenger cars (light trucks and vans are included as such) are subject to special rules that can limit deductions for purchases. In applying the rules discussed earlier, factor in:

• Dollar limits for expensive vehicles: You may not be able to take a full depreciation allowance if it’s more than the applicable dollar limit.
• Special rules for heavy SUVs: The Section 179 deduction generally is barred for vehicles. However, for those weighing more than 6,000 pounds — many SUVs meet this weight threshold — there’s a limited dollar amount ($25,900 in 2020). This can be combined with bonus depreciation, effectively allowing the entire cost of a vehicle to be deducted up front.
• Standard mileage rate: If you opt to deduct the cost of business driving by using an IRS-set standard mileage rate (e.g., 57.5 cents per mile in 2020), then you can’t deduct any depreciation for the purchase. The write-off for the cost of buying the vehicle is factored into the standard mileage rate.

If you buy a vehicle by trading in your old one, you likely have to report a gain on the sale of the old vehicle. Any allowance you receive toward the purchase price is treated as an amount received on the sale. If and to the extent it exceeds your basis in the old vehicle, it’s a taxable gain.

For example, say you had an old vehicle for which you paid $30,000, but because of depreciation, it now has a basis of $5,000. If the dealer gives you an $11,000 allowance toward the purchase of a new vehicle, you have a gain of $6,000 that’s taxable now ($11,000 minus $5,000).

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