April 1, 2008
Dear Clients,
As you have probably heard, businesses can claim substantial deductions for heavy (over 6,000 pounds gross vehicle weight) SUVs, trucks and other vehicles used primarily (over 50% of the time) in the business.
For heavy SUVs, the business can deduct up to $25,000 of the SUV’s cost in the year it is purchased. Also, the rules that limit the amount of annual depreciation allowed on passenger automobiles do not apply to heavy SUVs. This means the remaining cost of the heavy SUV can be written off over five years. For example, the maximum first-year depreciation deduction for a $45,000 heavy SUV placed in service during 2007 and used 100% for business will generally be $29,000 [$25,000 expense deduction + $4,000 MACRS deduction]. The maximum first-year depreciation deduction for a $45,000 passenger auto placed in service during 2007 and used 100% for business will be $3,060.
A heavy SUV is a passenger vehicle with an enclosed body that’s built on a truck chassis that has a gross vehicle weight rating – the manufacturer’s maximum weight rating when loaded to capacity – above 6,000 and less than 14,001 pounds. However, certain vehicles that otherwise meet this definition are allowed even greater tax benefits if:
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The vehicle is equipped with a cargo area of at least six feet in interior length. The cargo area cannot be readily accessible directly from the passenger compartment, but it can be either open or enclosed by a cab. Many pickups with full-size cargo beds will qualify for this exception, but “quad cabs” and “extended cabs” with shorter cargo beds may not qualify. So, when you go to the dealership, be sure to pack a tape measure, OR
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It can seat more than nine passengers behind the driver’s seat, such as hotel shuttle vans, OR
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It has an integral enclosure that fully encloses the driver’s compartment and load carrying device, does not have seating behind the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield, such as delivery vans.
For these vehicles, the full expensing deduction ($250,000 for 2008) is available. This means that businesses will often be able to write off the full cost of the vehicle in the year it is purchased.
To claim these deductions, you must establish through contemporaneous records (such as a mileage log) that you use the vehicle over 50% of the time for business. If your business usage later falls below 51%, a portion of the deductions previously claimed will need to be recaptured and reported as ordinary income in that year.
Attached is a list of vehicles (SUVs and non-SUVs) qualifying for larger deductions. If you would like more details, please do not hesitate to call.
Very Truly Yours,
SOUKUP, BUSH & ASSOCIATES, P.C.
