2024 Last Minute Year End Tax Deductions for Existing Vehicles

The year 2024 is coming to an end, and it is time to check your personal and business vehicles, such as cars, SUVs, trucks, and vans, for profitable year-end business tax deductions. This article will help you make last-minute tax-saving deductions.

First, look at your prior and existing business vehicles owned by you or your pass-through business. Later, consider the personal vehicles as a possible last-minute tax-saving deduction.

Existing business vehicles

First, identify your loss or gain on sale, and once you have it, understand the basic rules.

- Gains attributable to depreciation produce ordinary income
- Gain in excess of original basis product capital gains.
- Losses on business vehicles produce ordinary deductions.

Gains and losses are reported on IRS Form 4797, meaning the gains and losses travel outside the business income and expense categories and do not affect self-employment taxes.

Here are four existing vehicle tax deduction strategies you may be able to use. Do not delay further, as you must complete the action before December 31, 2004.

1. Take back your old business vehicle from your child or spouse and sell it

The old business vehicle could have big tax losses embedded in it. You can overcome it by selling the vehicle to a third party before December 31, to show tax-deductible loss this year. The loss deduction depends on the percentage of business use. So, sell the vehicle now. The longer your family uses it, the less tax benefit you will get.

The tip here is to get a replacement vehicle for your spouse or teenager before disposing of the vehicle, this could keep everyone happy.

If the old business vehicle produces a taxable gain, then leave it. You need a personal use percentage to grow and reduce the ultimate tax bite.

2. Business reported on Schedule C of your Form 1040. Use the vehicle buy-and-sell strategy.

The Tax Cuts and Jobs Act (TCJA) eliminated the tax-deferred exchange for vehicles. A vehicle trading-in is nothing more than selling the vehicle to the dealer. According to the new TCJA rule, self-employed and single-member LLC taxpayers who operate as sole proprietors will come out ahead because their trade-ins automatically take advantage of the buy-and-sell strategy.

This is how the strategy works:

- The sale to a third party or the trade-in sale of your existing business vehicle produces a gain or loss that does not increase or decrease your self-employment taxes.
- The purchase of the replacement vehicle creates depreciation and, if elected, Section 179 expense deductions. These deductions reduce your self-employment taxes.

3. Cash In on Past Vehicle Trade-Ins

Before 2018, when vehicles were traded, you pushed your old business basis to the replacement vehicle under Section 1031 tax-deferred exchange rules. Irrespective of whether the IRS mileage rates or the actual expense method for deducting your business vehicle is used, you could still find a big deduction here if a business vehicle is placed in service before 2018.

If you are trading in your cars and driving the vehicle you purchased before 2018, calculate your adjusted basis and compare it with your possible selling or trade-in price to see your expected gain or loss on sale. Suppose the loss is big, and you need tax deductions; sell or trade-in that vehicle on or before December 31.

4. Check your current vehicle for big deduction

Business vehicles purchased after 2017 could have a big deduction waiting for you. If you use IRS mileage rates, you have a high probability of a big tax loss deduction.

5. Put your personal vehicle in business service

If you or your spouse is driving a personal vehicle and wants to increase your tax deductions for this year without spending any money, then this is for you. The lawmakers have enacted a 60 per cent bonus depreciation for 2024, and it creates an effective strategy that costs you nothing but, at the same time, can produce solid deductions. Now convert your vehicle to a business vehicle and qualify for upto 60 percent bonus depreciation.

When a personal vehicle is converted for business use, then according to the law, you are placing the item in service in your business at that time. This could begin with depreciating the asset and claiming your tax deductions. To determine the basis to use for depreciation on this former personal vehicle, use the lesser of:

- Fair market value on the date of conversion from personal to business use or
- Adjusted basis of the property

Takeaways

Your existing vehicle can produce last-minute 2024 tax deductions with one of the five strategies described in this article:

If your spouse or child is driving your old business vehicle, find out whether it has a business loss deduction inside it. If it does, take the vehicle from your child or spouse and sell it.
If you are self-employed, a buy-and-sell vehicle strategy before December 31 can reduce both your income and self-employment taxes.
If you acquired your current business vehicle through a trade-in before 2018, consider all your trade-ins and calculate your possible loss deduction now.
Check your current vehicle for a large deduction. If you have high business use percentage and low depreciation, you could likely sell that vehicle and find a solid deduction.
If you or your spouse owns a vehicle you purchase but never deducts for tax purposes, convert that personal vehicle to business use to take advantage of 60% bonus depreciation.