Favorable Tax for Utility Vehicles
As you know, very unfavorable depreciation rules apply to most passenger autos and light trucks used in business. For a vehicle acquired during 1995 at a cost exceeding $15,300, depreciation deductions are generally limited to the following amounts:• 1995 - $3,060• 1996 - $4,900• 1997 - $2,950• 1998 and thereafter until cost is recovered - $1,775
If the business use percentage is less than 100% (which is often the case), your deductions are even smaller. You must multiply the above numbers by the business percentage.
More Favorable Depreciation - Certain sport utility vehicles qualify for more favorable depreciation. Because such vehicles are becoming so popular, we wanted to alert you to this tax break.
The key is finding a vehicle that is not considered a "passenger auto" under the tax rules. When such a vehicle is used more than 50% for business, you may be able to take a Section 179 deduction of up to $25,000 against your federal income ($10,000 for California purposes) this year. The remaining cost can then be recovered under the relatively favorable depreciation rules for business equipment.
According to IRS regulations, a vehicle is not a passenger auto when it has a gross vehicle weight (the manufacturer's maximum weight rating when loaded above 6,000 pounds. Several popular models of sport utility vehicles (e.g., Chevrolet Suburbans, Toyota Land Cruisers, and some Range Rovers) are heavy enough to pass the 6,000 pound test. Dealers should be able to tell you which ones qualify.
Leased Vehicles - Heavy sport utilities are exempt from the IRS lease add-backs, which can reduce deductions for "normal" passenger vehicles. With a heavy sport utility, you can deduct the full business percentage of the lease payments.
The Luxury Tax - Heavy sport utilities are also exempt from the 10% luxury auto excise tax. For "normal" passenger vehicles, this tax is 10% of the price in excess of $32,000.
More Favorable Depreciation - Certain sport utility vehicles qualify for more favorable depreciation. Because such vehicles are becoming so popular, we wanted to alert you to this tax break.
The key is finding a vehicle that is not considered a "passenger auto" under the tax rules. When such a vehicle is used more than 50% for business, you may be able to take a Section 179 deduction of up to $25,000 against your federal income ($10,000 for California purposes) this year. The remaining cost can then be recovered under the relatively favorable depreciation rules for business equipment.
According to IRS regulations, a vehicle is not a passenger auto when it has a gross vehicle weight (the manufacturer's maximum weight rating when loaded above 6,000 pounds. Several popular models of sport utility vehicles (e.g., Chevrolet Suburbans, Toyota Land Cruisers, and some Range Rovers) are heavy enough to pass the 6,000 pound test. Dealers should be able to tell you which ones qualify.
Leased Vehicles - Heavy sport utilities are exempt from the IRS lease add-backs, which can reduce deductions for "normal" passenger vehicles. With a heavy sport utility, you can deduct the full business percentage of the lease payments.
The Luxury Tax - Heavy sport utilities are also exempt from the 10% luxury auto excise tax. For "normal" passenger vehicles, this tax is 10% of the price in excess of $32,000.
There are other tax-cutting strategies in addition to those mentioned here. If you would like assistance in selecting tax-saving strategies that make the most sense in your situation, contact us today!