2024 Last-Minute Year-End Tax Deductions for Existing Vehicles
2024 Last-Minute Year-End Tax Deductions for Existing Vehicles
Introduction
With the end of 2024 almost here, taxpayers are seeking ways to reduce their tax bills before the year ends. Another area where tax deductions are often overlooked is existing personal and business vehicles. In this article, we’ll examine five last-minute strategies that can lead to significant tax deductions on your current cars, trucks, SUVs, and vans.
Regardless of whether you use your vehicles for business or personal use, you can find tax savings. Keep reading to find out how you can make the most of your 2024 tax deductions before December 31st.
Examine Vehicles Used for Your Business
If you operate as a sole proprietorship, partnership, LLC, or S corporation, the vehicles used in your business can provide major tax deductions. Here are two strategies to consider with your business vehicles before the year ends:
1. Sell Off an Older Business Vehicle
Do you still have an older vehicle that was previously used in your business? Is a family member currently driving it for personal use?
If so, consider taking back that vehicle and selling it to someone else before December 31st. This triggers a taxable loss on the sale that can be deducted from your 2024 business tax return.
Any losses are reported on IRS Form 4797 and reduce your ordinary business income. This provides deductions without increasing your self-employment taxes.
2. Trade-In Business Vehicles Using a Buy-Sell Strategy
Thanks to tax law changes, trading in a business vehicle is now treated as two separate transactions:
A sale of the old vehicle to the dealership
A purchase of the new replacement vehicle
This creates an opportunity for sole proprietors and single-member LLCs to utilize a "buy-sell" strategy around the trade-in to minimize self-employment taxes.
Here's a quick example:
Billy trades his old business vehicle with a $0 tax basis to the dealership, receiving $17,000 credit for the trade-in
This triggers a $17,000 taxable gain for Billy in 2024
Billy uses that credit to buy a new $50,000 pickup truck with 83% business use
He claims $42,590 depreciation deduction on the new truck in 2024
In this scenario:
The $17,000 gain is reported on Form 4797 so it does not increase the self-employment tax
The $42,590 depreciation deduction lowers self-employment tax
Combined tax savings exceed $12,000
Find Hidden Deductions in Personally Used Vehicles
If you or your family members primarily use your vehicles for personal purposes, there are still opportunities to generate deductions in 2024.
Here are three options to consider with your cars and trucks:
3. Cash in on Pre-2018 Trade-In Values
Business vehicles that were traded in before 2018 qualified for tax deferral under Section 1031 rules at the time. This means your historical trade-in values accumulated over time but were never taxed.
Now if you sell a business vehicle placed in service before 2018, all those deferred gains and losses get triggered at once. For vehicles expensed using mileage rates, this often results in a large loss deduction.
4. Check for Built-In Losses on Current Vehicles
Even business vehicles acquired after 2017 may have loss deductions waiting to be claimed.
For example:
Jim bought a vehicle for his business in 2020 for $60,000
He has deducted $10,000 depreciation over 2020-2023
Jim is selling the vehicle today for $25,000
This triggers a $19,750 loss deduction in 2024
5. Convert Personal Vehicles into Business Use
Do you or your family members own a personal truck, van or SUV that is used minimally for business purposes?
Before year-end, think about turning a personal vehicle into predominant business use. It lets you take bonus depreciation deductions on it beginning in 2024.
Conclusion
As we head into December 31st, this is the perfect time to begin extracting tax deductions from the vehicles you already own.
Potential deductions aren’t just sitting in your garage or driveway. Before December 31st, consult your tax professional to execute one or more of these last-minute tax-saving strategies!