Tax Alert: Deductions Available for Heavy SUVs and Trucks Used for Business
11/18/2011
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“The 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 percent 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:
When a vehicle is used less than 100 percent for business, these figures are further reduced. In fact, the average client may not live long enough to fully depreciate an expensive car.
Exception for Heavy Trucks, Vans, and Sport Utility Vehicles (“SUVs”)
Heavy trucks, vans, and SUV 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. Click here for a document listing many of the 2012 vehicle models that qualify, as of November 10, for these special tax benefits based on their GVWRs. As you can see, it’s a surprisingly long list. Be advised that, as new and retooled models are continually released, this list may not be complete, so it is always recommended that a buyer verify the GVWR 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 such a vehicle is purchased in 2011 and used more than 50 percent for business, it may be possible to deduct the entire business portion of the vehicle’s cost in 2011. 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 percent 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 percent of the time for business. If your business usage later falls below 50 percent, 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 percent bonus depreciation.
For more details about this or other potential tax savings strategies, please contact your J.H. Cohn engagement partner at 877-704-3500.
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This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and J.H. Cohn LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.