The Internal Revenue Service establishes a threshold for vehicle cost which, when exceeded, designates that vehicle as subject to specific tax rules concerning depreciation deductions. This designation materially affects the amount a business can deduct for the vehicle’s use. For instance, if a car’s purchase price surpasses the established limit, the allowable depreciation each year is capped, potentially extending the recovery period for the vehicle’s cost.
Understanding these limitations is vital for accurate business tax planning. These regulations are implemented to prevent excessive depreciation deductions on high-end vehicles used for business purposes, thereby ensuring fairer tax revenue collection. These stipulations have evolved over time, reflecting adjustments for inflation and changes in tax policy. They are published annually and can significantly impact a company’s bottom line.
