It’s good to be wealthy. You know this, or you wouldn’t be reaping the rewards of hard-earned success, like a high-end car. You also know that you can expect some penalties, too. Discover what you need to know about luxury vehicles and your taxes by reading below.

Luxury Automobile Limitations

The government has set limits on how much of a luxury car’s depreciation you can deduct on your tax return. Each year, the amount is indexed for inflation. For a typical car bought in 2020, the maximum deduction is about $18,000, including bonus depreciation. But, of course, yours is not a typical car.

“Luxury automobiles” are subject to different tax standards. Luxury taxes are only applied to certain products and services that are considered “non-essential,” or only accessible to the upper class. The IRS considers luxury cars to have four wheels, used mainly on public motorways, with an uploaded gross weight up to 6,000 pounds.

The Latest Luxury Car Act

In 2017, the Tax Cuts and Jobs Act (TCJA) made some changes in luxury vehicle tax law. For you, it means that you can take an increased $8,000 in business deductions in your car’s first year. The TCJA also expanded bonus depreciation for qualifying property purchased between Sept. 27, 2017, and Jan. 1, 2023.

The TCJA deduction and bonus deduction only applies if you paid more than $58,000 for it. For both kinds of deductions, depreciation depends on how much you used your car for business, usually 100 percent and at least 50 percent, respectively. The maximum bonus depreciation, however, is only for heavier business vehicles, not passenger cars, and will be phased out starting in 2023.

What That Means Specifically

If you have a luxury passenger vehicle you used solely for business after 2017, you can take advantage of 100 percent of the first-year bonus depreciation for qualifying new and used property. Without a bonus depreciation claim, these are the highest depreciation deductions allowed:

• $10,100 for the first year
• $16,100 for the second year
• $9,700 for the third year
• $5,760 for each taxable year later in the recovery period

If the vehicle qualifies for the maximum bonus depreciation, this is the schedule:

• $18,000 for the first year
• $16,000 for the second year
• $9,600 for the third year
• $5,760 for each taxable year later in the recovery period

Double Checking Deductions

At Nahas Motorcars, we specialize in buying the best, so we’re familiar with luxury vehicles and what they mean for your taxes. Make sure you’re capitalizing on all possible deductions, and confirm them with your trusted tax professional. If you’re ready to sell your Porsche , or any other luxury or exotic vehicle, contact Nahas Motorcars. We come to you, inspect the vehicle, and make an offer on the spot. We know that your time is as valuable as your assets, so you can have your money and be on your way in a half hour.