Q: I understand there is a tax loophole for
business owners that I am curious about. It states that if you purchase a new
sport utility vehicle that weights more than 6,000 pounds, you can immediately
deduct $20,000 of the cost and depreciate the rest faster than allowed under the
regular rules for business vehicles. My question is this: Does this apply only
to new vehicles, or does a used vehicle qualify for this deduction?
A: The first key point to your question is not
that there is a tax loophole. It is the actual rules for recording the business
use of a vehicle. There is accelerated depreciation available for business
assets under Internal Revenue Code Section 179 that can allow a substantial
depreciation deduction in the first year if the vehicle is placed into
service.
The second key point is whether or not the vehicle is “listed property.”
Typically, automobiles are “listed property,” which means there are limits
on the amount of the accelerated depreciation that is available. Section 179
depreciation is not available for listed property. Listed property basically
means the assets “lend themselves to personal use” and therefore the IRS is
less likely to allow such items to be depreciated using the accelerated methods.
A vehicle that weights less than 6,000 pounds is considered listed property and
comes under the limitations. A vehicle that is heavier than 6,000 pounds is not
considered listed property since many such vehicles do not lend themselves to
personal use such as dump trucks, tractor trailers and “delivery trucks.”
You still must be able to substantiate that the vehicle is indeed used for
business.
The Section 179 deduction is limited to earnings from the business and is also
limited to the year in which the vehicle was purchased. Therefore, if you do not
have earnings from the business, the deduction may be limited and the deduction
does not apply to vehicles that were initially placed into service in a previous
year.
The IRS has a very good publication to help you with this information called “Publication
463: Travel, Entertainment, Gift and Car Expenses. You can download the
publication from the IRS for free from their web site at:
http://www.irs.ustreas.gov/plain/forms_pubs/pubs.html