According to the IRS, a luxury vehicle is any car that has four wheels, is used primarily on public roads, and has a gross unladen weight of less than 6,000 pounds. The luxury car limitation is the annual limit on the amount of depreciation that can be applied to a luxury car used for commercial purposes. This amount is indexed each year for inflation. The purpose of luxury car limitations is to control the type and amount of money companies spend on luxury cars for tax purposes.
If your company really needs a luxury car, you can lease one for maximum tax advantages. When you lease a car that you use 100 percent for your business, the full lease payment is deductible. At the same time, you can also cancel your out-of-pocket driving expenses, such as fuel, maintenance, tires, and insurance. This also gives your company the advantage of being able to renew its luxury fleet regularly, keeping your cars new and in good condition.
To this end, the agency limits the amount of the cost of a luxury car that your company can deduct from its taxes. Companies buying smaller, more fuel-efficient luxury cars may find this option particularly attractive. The type of car you select determines not only how much you pay for the vehicle, but also what taxes you pay and how much it costs to maintain and drive the car.