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Faster write-off for heavy sport utility vehicles (SUVs)

Cars are subject to more restrictive rules than those that apply to other depreciable assets.

Were cars not subject to the restrictive rules, you would be entitled to a deduction, for a car exclusively used in business, of 20% of the cost of the car in the year you place it into service. Also, it is possible that you would qualify for an election to “expense” (i.e., deduct in the first year) an additional amount of the car's cost. However, under the so-called “luxury auto” rules, depreciation and expensing deductions are artificially “capped.”

  • For example, for an automobile first placed in service in 2011, the maximum depreciation deduction for the first tax year in its recovery period (i.e., 2011) is limited to $11,060; $4,900 for the second tax year; $2,950 for the third tax year; and $1,775 for each succeeding tax year. The effect is generally to extend the number of years it takes to fully depreciate the  vehicle.

Because of the restrictions for cars, you may be better off tax-wise (if not gasoline mileage-wise) if you buy one of the sport utility  vehicles (SUVs) instead of a car. That's because the regular annual depreciation and expensing caps for passenger automobiles don't apply to trucks or vans (and that includes SUVs) that are rated at more than 6,000 pounds gross (loaded)  vehicle weight.

Instead, for new SUVs placed in service and acquired after Sept. 8, 2010 and before Jan. 1, 2012, 100% of the cost of the SUV can be deducted in the year that the car is placed in service (100% bonus depreciation), subject to adjustment for non-business use (and the more-than-50% business use rule discussed below).

New SUVs that don't qualify for 100% bonus depreciation are, if placed in service before Jan. 1, 2013, eligible for 50% bonus depreciation in the placed-in-service year and depreciation, at an accelerated rate, of the remaining 50% of the cost in the six-tax-year period beginning in the placed-in-service-year. Note that you may also be eligible to elect to expense (see above) up to $25,000 of the cost of the SUV, with the 50% bonus depreciation rate and other depreciation applied to the remaining cost. All of these tax benefits are subject to adjustment for non-business use (and the more-than-50% business use rule discussed below).

If business use of the  vehicle doesn't exceed 50% of total use, the SUV isn't eligible for bonus depreciation or expensing and has to be depreciated on a straight-line method over a six-tax-year period.

For more details about this opportunity to get large write-offs when you buy a heavy SUV for business, please give ua a call.