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IRS posts new limits for luxury cars

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in Small Business Tax,Small Business Tax Deduction Strategies

Automobile costs keep going up. But the IRS won’t budge much on its definition of a “luxury car” for business drivers. According to the new figures just released for vehicles placed in service in 2007, the luxury-car limits apply to any car costing more than $15,300, give or take a few dollars. (IRS revenue procedure 2007-30)

Strategy: To maximize deductions, keep detailed records on actual expenses. In addition to depreciation (subject to the luxury-car limits), you can write off costs attributable to gasoline, oil, insurance, repairs, etc.

The regular depreciation period for business vehicles is five years (six calendar years for tax return purposes), but it takes longer to recoup the full costs under the luxury-car rules. For cars placed in service in 2007, the new limits are:

Tax year Passenger vehicles
Trucks and vans
2007
$3,060 $3,260
2008
$4,900 $5,200
2009
$2,850
$3,050
2010 and thereafter
$1,775
$1,875

If you buy a new passenger vehicle in 2007 and use it 80 percent for business, the IRS limits your annual depreciation deduction to $2,448 (80 percent of $3,060).

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