Since 2003, the Section 179 deduction has exceeded $100,000. For a brief period of time, business owners could purchase SUVs with a gross vehicle weight rating over 6,000 pounds and write off the full purchase price via the Section 179 deduction.
Example: It is 2003 and Andy buys a $60,000 Cadillac Escapade that he uses 100% for business. Since this vehicle’s gross weight rating was over 6,000 pounds, Andy could take a full $60,000 Section 179 deduction for the purchase price of the vehicle.
The party ended on October 22, 2004. After this date, the Section 179 deduction is limited to $25,000 for SUVs with a gross weight rating between 6,001 and 14,000 pounds.
Example: It is 2005 and Barney buys a $60,000 Cadillac Escapade that he uses 100% for business. Since the vehicle’s gross weight rating is between 6,001 and 14,000 pounds, the Section 179 deduction is limited to $25,000. Barney may then claim regular depreciation on the remaining $35,000 purchase price of the Escapade (which will be deducted over the 5 year life of the vehicle).
Depreciation per Year is as Follows:
Section 179 Regular Depreciation
2005 $25,000 $7,000
The heavy SUV rule applies to Section 179 expense, it does not limit the amount a taxpayer can deduct through bonus depreciation. Therefore, the heavy SUV rule will not affect the amount a taxpayer can deduct through 50% bonus depreciation for 2012.
Example: It is 2012 and Opie buys a $60,000 Cadillac Escapade that he uses 100% for business. Since the vehicle’s gross weight rating is between 6,001 and 14,000 pounds, the Section 179 deduction is limited to $25,000. However, Opie may still claim the full amount of 50% bonus depreciation on the vehicle.
Depreciation per Year is as Follows:
Section 179 50% Bonus Depreciation Regular Depreciation
2012 $25,000 $17,500 $3,500
As you can see, 50% bonus depreciation helps taxpayers accelerate the timing of their depreciation deductions.
The reduced Section 179 deduction applies only to vehicles that are SUVs. The following types of vehicles are not considered SUVs and are allowed a full Section 179 deduction ($139,000 in 2012).
- Vehicles designed to fit more than nine passengers behind the driver’s seat—for example, a shuttle van
- Vehicles equipped with a cargo area that is not readily accessible directly from the passenger compartment and that is at least six feet in length. Many pickups with full-size cargo beds will qualify for this exception
- Vehicles with (1) and integral enclosure that fully encloses the driver’s compartment and load carrying device, (2) no seating behind the driver’s seat, and (3) no body section protruding more than 30 inches ahead of the leading edge of the windshield. Many delivery vans will qualify for this exception
The IRS’ concern was that luxury SUVs which are purchased primarily for personal reasons were being rapidly depreciated. The three exceptions above are for vehicles that are essentially purely business vehicles that have no personal pleasure element.
If you need help with small business taxes,
sign up for a FREE tax consultation.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Any tax advice contained in the body of this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Any information contained in this post does not fall under the guidelines of IRS Circular 230