Did you purchase a 2022 Tesla Model X (or a similar crossover vehicle) and claim 100 percent bonus depreciation on your 2022 tax return? If so, you should know that the IRS has incorrectly disallowed these deductions, arguing that the Model X is a passenger automobile subject to luxury auto depreciation limits.
In a case we know of, the IRS incorrectly disallowed a $120,000 deduction—reducing it to just $19,200 and creating unexpected tax liabilities.
Why the IRS Is Wrong
Under tax code Section 280F, passenger automobiles are subject to strict depreciation limits if their curb weight is 6,000 pounds or less. However, the tax code applies a different standard for trucks and vans, using their gross vehicle weight rating (GVWR).
According to Tesla, the Tesla Model X is an SUV and technically (under tax law) a truck with a GVWR of 6,250 pounds, which exceeds the 6,000-pound threshold and qualifies the vehicle for full bonus depreciation. The U.S. Department of Transportation classifies the Tesla Model X as a non-passenger automobile due to its three-row seating and flat-folding interior, reinforcing that it should not be subject to the luxury auto limits.
What to Do If the IRS Challenges Your Rightful Deduction
If an IRS examiner disallows your rightful deduction, take the following steps:
• Request a supervisor review. Your dispute might get resolved at this level.
• Consider mediation. A non-binding option may lead to a favorable resolution.
• File an appeal. The IRS Independent Office of Appeals will likely rule in your favor (remember, you are technically correct on this deduction).
• Go to Tax Court if necessary. Given that you have precise legal and regulatory support for your rightful deduction, you should win—and you could collect attorney fees too.
Protect Your Deduction
An IRS examiner’s opinion is not final. When you know you are right, you have to stand your ground.
While you can often resolve an issue like this alone, professional representation can help simplify the process.
Sterling Tax and Accounting is here to help your business with tax planning! Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket. If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.
Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.
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