The 2010 Tax Relief Act provides a limited-time 100% bonus depreciation allowance for qualified property which allows taxpayers that buy a new heavy SUV and use it entirely for business to write-off the entire purchase price in the placed-in-service year.
Heavy SUVs are vehicles with a gross vehicle weight (GVW) rating of more than 6,000 pounds which are exempt from the luxury auto dollar caps because they fall outside of the definition of a passenger auto. To deal with this “SUV tax loophole,” several years ago, Congress imposed a limit on the Sec. 179 expensing of heavy SUVs. Thus, not more than $25,000 of the cost of a heavy SUV placed in service after Oct. 22, 2004 may be expensed under Sec. 179. These rules apply, with some exceptions, to SUVs rated at 14,000 pounds GVW or less.
Under the 2010 Tax Relief Act, the bonus first-year depreciation percentage is 100% for eligible property that is generally:
(1) Placed in service after Sept. 8, 2010 and before Jan. 1, 2012, and
(2) Acquired by the taxpayer after Sept. 8, 2010 and before Jan. 1, 2012.
Eligible property includes heavy SUVs. Thus, a taxpayer that buys and places in service a new heavy SUV after Sept. 8, 2010 and before Jan. 1, 2012, and uses it 100% for business, may write-off its entire cost in the placed-in-service year. There is no specific rule barring this result for heavy SUVs.
Let’s say a taxpayer purchased a heavy SUV in October of 2010 for $50,000 and used the vehicle 100% for business for the rest of 2010. This taxpayer can write-off the full $50,000 cost of the vehicle on his 2010 return. If the vehicle is used less than 100% for business, the deduction is prorated.
If you have questions related to buying a heavy SUV and how this deduction will apply to your specific tax circumstances, please give this office a call.