NASE Blogs

Recording the business use of a vehicle

Apr 03, 2009

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.gov/pub/irs-pdf/p463.pdf