Periodic Ownership/Operation Costs - State and local governments may impose taxes and fees upon the ownership and operation of vehicles by a business, such as recurring registration charges and value-based assessments like excise or personal property taxes.

Generally, if you use a vehicle solely for business purposes you may deduct the entire cost of owning and operating the vehicle, including state and local taxes and fees. Under the 12-month rule, you may deduct these recurring taxes and fees as long as the right or benefit created by the payment does not extend beyond the earlier of (i) 12 months after the first date on which the taxpayer realizes the right or benefit; or (ii) the end of the taxable year following the taxable year the payment is made. For example, you can deduct your annually paid vehicle excise or personal property taxes. However, pre-paid multi-year vehicle excise or personal property taxes are deductible only in the year to which they apply.

Additionally, you may deduct Heavy Vehicle Use Taxes (HVUT) the Federal government imposes on an annual basis on the use of heavy highway motor vehicles with a taxable gross weight of at least 55,000 pounds. You must file IRS Form 2290 and pay the HVUT by the last day of the month following the month you first used the vehicle on a public highway. The tax year for the HVUT runs from July 1 to June 30.

Purchase Costs - State and local governments may impose taxes and fees in connection with the acquisition of a vehicle, such as initial registration charges, and excise or sales taxes. You should capitalize these amounts paid to purchase a vehicle used in your business.

Once you place the vehicle in service and use the vehicle in your business, you may recover the cost of the vehicle, including excise or sales taxes paid in connection with its acquisition, as a section 179 deduction for that taxable year or by taking annual depreciation deductions under section 168, including the additional first year (bonus) depreciation deduction under section 168(k).

Both the section 179 deduction and section 168 depreciation deductions for the vehicle may be subject to annual limitations (for example, passenger automobiles and certain trucks and vans are subject to annual limitations for the placed-in-service year and each subsequent tax year).