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Steer around roadblocks to vehicle deductions

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in Small Business Tax,Small Business Tax Deduction Strategies

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 Section 179, 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)


{ 2 comments“ read them below or add one }

DD June 12, 2013 at 5:32 pm

This is not sounds advice. IRC 280F(d)(1) precludes these deductions from piling on. Also see related 280F and 179 Treasury Regulations. Assuming 100% business use, the maximum deduction to be claimed in any one year is $25,000. The remaining is depreciable over the life of the asset, subject to listed vehicle depreciation celings.

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steve Chaltas December 10, 2012 at 10:36 pm

If I am a general partner of a limited partner and by a Ford F-150 over 6,000 lbs and use it 100% of the time where on turbo tax allows me to make the calculations you have made above to take the deduction. I have looked for the details in the IRS forms 4562 for 2011 and didnt see where it was address. The form 4562 for 2012 doesnt appear to be out yet and was wondering if this could be eliminated for 2012 as part of the fiscal cliff? Can you please give me some direction on the IRS forms to be used to come up with the numbers you have.

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