As you probably know, the 2010 Tax Relief Act provided bigger depreciation deductions for business assets. In fact, under Section 179, businesses can expense up to $500,000 of depreciable business assets acquired during 2011, with any remaining basis fully deducted using the 100% bonus depreciation. Unfortunately, unfavorable depreciation rules apply to most passenger autos and light trucks used in business. For a vehicle acquired in 2011, depreciation deductions are generally limited to the following amounts:
|
|
|
New Cars |
|
Used Cars |
|
New Light Trucks and Vans |
|
Used Light trucks and Vans |
| Year 1 |
|
$ 11,060 |
|
$ 3,060 |
|
$ 11,260 |
|
$ 3,260 |
| Year 2 |
|
4,900 |
|
4,900 |
|
5,200 |
|
5,200 |
| Year 3 |
|
2,950 |
|
2,950 |
|
3,150 |
|
3,150 |
|
Year 4 and thereafter |
|
1,775 |
|
1,775 |
|
1,875 |
|
1,875 |
|
|
|
|
|
|
|
|
|
|
Of course, when a vehicle is used less than 100% for business, these figures are cut back even further. In fact, the average client may not live long enough to fully depreciate a really expensive car.
Exception for Heavy Trucks, Vans, and Sport Utility Vehicles (SUVs). These vehicles are not subject to the above limits. A truck, van, or SUV is “heavy” if it has a Gross Vehicle Weight Rating (GVWR) (the manufacturer’s maximum weight rating when loaded) above 6,000 pounds. On the second page of this letter, we’ve listed many of the 2012 vehicle models that qualify for these special tax benefits based on their GVWRs at the time we checked them. As you can see, it’s a surprisingly long list. In addition, there may be some we have missed (new and retooled models are coming out all the time). Thus, always verify the GVWR for yourself before making a buying decision. The GVWR can normally be found on a label attached to the inside edge of the driver’s side door.
If you buy such a vehicle in 2011 and use it more than 50% for business, you may be able to deduct the entire business portion of the vehicle’s cost this year. For example, if before the end of the year you buy a new $65,000 heavy SUV that has a gross vehicle weight above 6,000 pounds and is used 100% for business, you may be able to deduct the entire $65,000 this year.
To claim these deductions, you must establish through contemporaneous records (such as, a mileage log) that you use the vehicle over 50% of the time for business. If your business usage later falls below 51%, a portion of the deductions previously claimed will need to be recaptured and reported as ordinary income in that year. Also, deductions allowable for used vehicles may be limited as such vehicles do not qualify for 100% bonus depreciation. Finally, this strategy works best if you are self-employed—claiming a Section 179 and bonus depreciation deductions for a heavy corporate-owned vehicle is much more difficult. Nevertheless, the heavy vehicle deductions can generate major tax savings given the right circumstances.
If you would like more details, please do not hesitate to call.
Sincerely,
Miller Verchota, Inc.
Certified Public Accountants
