Avoiding the Tax Deduction Roadblocks
November 9, 2012
A taxpayer who uses a personal vehicle for business driving may benefit from a unique tax break. Under the current tax law, certain heavy-duty sport utility vehicles (SUVs) are exempt from the usual "luxury car" limits. General rules: Under Section 179, a business can write off up to $139,000 of qualified business property placed in service in 2012. But the IRS also sets annual limits for vehicles, although the limits this year are increased by 50% bonus depreciation. Below are the annual deduction limits for vehicles placed in service in 2012 that qualify for bonus depreciation. Type of vehicle 2012 2013 2014 2015 and thereafter Automobiles $11,160 $5,100 $3,050 $1,875 Light trucks and vans $11,360 $5,300 $3,150 $1,875 Note: These figures must be adjusted based on the percentage of business use. For instance, if a taxpayer buys a passenger car in 2012 and uses it 75% for business, the maximum first-year deduction is $8,370 (75% of $11,160). Comparable rules apply to leased vehicles. For leased vehicles, taxpayers must report an "inclusion amount" based on special tables. However, a qualified heavy-duty SUV with an unloaded gross vehicle weight rating (GVWR) over 6,000 pounds is exempt from the luxury car limits. In this case, the maximum Section 179 deduction is capped at $25,000, far more generous than the luxury car limits. In addition, the vehicle is eligible for bonus depreciation and regular depreciation deductions. Do not forget to factor in the tax ramifications. This could tilt a car-buying decision in one direction.