The tax law generally limits the annual amount you can deduct for depreciation of so-called “luxury cars.”
Strategy: Buy a heavy-duty sports utility vehicle (SUV) for business use in 2012. If the vehicle meets certain requirements, you can sidestep the luxury car limits.
Under a 2004 tax law, the maximum first-year deduction for SUVs is capped at a healthy $25,000. Congress has frequently threatened to close this loophole, but it hasn’t happened yet.
Here’s the whole story: Under, you can write off up to $139,000 of qualified business property placed in service in 2012. But the IRS also sets annual luxury car limits, although the limits for 2012 are boosted by 50% bonus deprecation (see box). These figures are adjusted based on the percentage of business use.
Key exception: A heavy-duty SUV with gross vehicle weight rating (GVWR) over 6,000 pounds is exempt from the luxury car limits.
Example: If you buy a new heavy-duty SUV for $60,000 and use it 100% for business in 2012, you can write off $25,000 under Section 179. Then you can claim 50% bonus depreciation on the remaining $35,000 cost, or $17,500. And you can also deduct 20% of the $17,500 balance under the regular depreciation tables, or $3,500. Total first-year deduction: A whopping $46,000! Note that the 50% bonus depreciation break is only available for new (not used) vehicles.
Tip: The IRS also provides annual limits that apply to leased cars. (IRS Revenue Procedure 2012-23)