Maximize End-of-Year Tax Deductions Using Your Business and Personal Vehicles

Posted on October 16, 2024.

As we approach year-end, there’s still time to leverage existing business and personal vehicles to reduce your 2024 tax liability. The deadline is December 31, so consider these strategies now to make the most of your tax deductions.

1. Sell Your Old Business Vehicle for a Tax-Deductible Loss

Does your child or spouse currently drive an old business vehicle? If so, it might have an embedded tax loss that can benefit you this year. Here’s how it works:

• If the vehicle is still in your business records but used for personal purposes, your business use percentage declines over time, lowering your potential deduction. Selling the vehicle to a third party before December 31 could let you claim a significant tax-deductible loss this year.

The key is timing: the sooner you sell, the more business use you retain, and the larger your deduction will be.

2. Unlock Deductions from Pre-2018 Vehicle Trade-Ins

If you traded in business vehicles before 2018, you could be sitting on an overlooked tax deduction due to the old Section 1031 rules, which deferred gains and losses to the next vehicle.

Example: Let’s say Sam, a business owner of 15 years, has traded in multiple business vehicles. He:

• Converted his personal vehicle to business use, traded it in for a replacement, and continued this pattern for years, always using IRS standard mileage rates.

By selling his current business car today, Sam realizes a tax loss of $27,000. This large deduction results from years of accumulated depreciation that carried over each time he traded up.

If you bought a business vehicle in 2017 or earlier and used a trade-in to acquire it, check for a potential deduction that may be bigger than you realize!

3. Place a Personal Vehicle in Business Service Before Year-End

If you or your spouse drives an SUV, crossover, or pickup truck with a gross vehicle weight rating over 6,000 pounds, consider placing it into business service by December 31 to capitalize on the 80% bonus depreciation allowed in 2024. This simple switch can yield substantial tax savings without requiring additional spending.

4. Check Your Current Business Vehicle for Potential Tax Deductions

If you’re currently using a business vehicle, you could have an unrealized deduction waiting for you, even if you bought it after 2017.

Example: Jim bought a $60,000 vehicle in 2021, used 85% for business, and has depreciated it $10,000 over four years. If he sells it now for $25,000, he realizes a tax loss of $19,750.

By reviewing your current vehicle’s depreciation and potential resale value, you may discover an opportunity for additional tax savings.

Get Expert Help on Vehicle-Related Deductions

If you’re exploring these vehicle strategies or need help understanding how they apply to your situation, reach out for a consultation. These end-of-year adjustments can make a significant difference in your 2024 tax liability. Don’t miss out!