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Drive up bigger depreciation deductions for unibody SUVs

by on
in Small Business Tax,Small Business Tax Deduction Strategies

If you’re buying an SUV for your business this year, you might be able to sidestep a major tax roadblock to bigger depreciation deductions. A new IRS ruling appears to extend a narrow tax law exception to more vehicles. (IRS Revenue Procedure 2008-22)

Strategy: Pay close attention to the vehicle specs. This could be worth literally thousands of dollars on your 2009 tax return. 

The new tax-saving opportunity relates to a subtle change in the language used by the IRS to set the so-called “luxury car” limits.

Here’s the whole story: The annual depreciation amount you may claim for a vehicle used for business driving is limited for luxury cars and other vehicles such as light trucks and vans. Traditionally, the IRS announces the current limits for each year in March.

The limits for 2008 were boosted by the 50% “bonus depreciation” allowance included in last year’s economic stimulus law. Although bonus depreciation may be revived in 2009 by a new stimulus package, it’s not certain.

The chart below shows the limits in effect for the 2008 tax year without taking bonus depreciation into account. The new limits for 2009 are not expected to change by much.

Remember that those figures are based on 100% business use. For example, if you buy a luxury automobile and use it for business 80% in the first year, the deduction is limited to $2,368 (80% of $2,960).

But the tax law includes a special exception for vehicles built on truck chassis and weighing more than 6,000 pounds loaded. This tax break applies to certain heavy-duty SUVs. Initially, business owners could write off the entire cost of such an SUV under Sec. 179. Then a 2004 tax law capped the annual deduction at $25,000—still a good tax deal when compared to most other vehicles. 

Fork in the road: When the IRS released the limits for 2008, it omitted—for the first time—language indicating that an SUV should be treated as a “truck” only if it was built on a truck chassis. Instead, the IRS said that the phrasing was only intended as a means for taxpayers to help determine whether they qualified for the $25,000 deduction. This leaves the door open for a different interpretation for vehicles built on unibody frames such as crossover vehicles, like the Buick Enclave.

For instance, a vehicle is defined as a light truck for purposes of the gas-guzzler tax as a four-wheel vehicle designed for off-roadway use (i.e., a vehicle with four-wheel drive or one that weighs more than 6,000 pounds loaded and has physical features of a truck or has other characteristics such as an open bed).        

Tip: If a unibody SUV meets this definition, claim the full $25,000 deduction. When warranted, file an amended return for a prior year.

Type of vehicle
First year
Second year
Third year
Each succeeding year
Automobiles
$2,960
$4,800
$2,850
$1,775
Light trucks and vans
$3,160
$5,100
$3,050
$1,875
 

 

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{ 1 comment… read it below or add one }

John January 25, 2012 at 1:23 pm

Do you think this could apply to minivans with GVWR over 6000lbs as well? The category is trucks and vans. Minivans are a type of van and they are classified as light trucks by federal mileage standards.0

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