Thursday, November 18, 2004

Trucks vs. SUVs

A well-publicized change in the recent tax bill was the reduction of the write-off allowed for SUVs. In an effort to raise revenue and assuage the environmental lobby, Congress reduced the Section 179 deduction to $25,000 for SUVs.

This begs the question, what's an SUV? Well, for this purpose, it's any vehicle between 6,000 and 14,000 lb. GVW, except for the following:
  • Vehicles that seat more than 9 passengers behind the driver (think shuttle vans)
  • Vehicles with a separate cargo area at least six feet long. (Most full-size pickups, but possibly not some quad-cab/extended-cab or short bed trucks.)
  • Delivery vans
  • Ambulances, hearses, and vehicles-for-hire used to transport people or items.
While this reduces what can be expensed under Section 179, SUVs still are exempt from the luxury auto limitations, so they generate much higher deductions than similarly-priced cars. And since it's not always the best move to fully deduct an SUV or any vehicle in the first year, this limit really isn't too restrictive.

posted by David Futcher, CPA @ 9:51 AM   2 comments  

2 Comments:

At 9:24 AM, Marty Fiascone said...

David,

I saw an article you wrote on the web from Nov. 18, 2004. I have a quick question.

Does the change in Section 179 of the tax code that reduced the deduction to $25,000 mean that the max that can be deducted over the life of the 6000 lb. vehicle is $25,000?

Example:
If I were to buy a qualifying vehicle and use it 100% for business, can I deduct $25,000 per year? If the vehicle costs $50,000 can I deduct $25,000 for two years or is $25,000 the lifetime max regardless of what the vehicle actually costs?

Thanks so much.

Marty Fiascone

 
At 9:24 AM, David Futcher, CPA said...

Marty,

Thanks for the question. The reduction in Section 179 does mean that $25,000 is the most Section 179 expense that can be taken for the vehicle. In your example of a $50,000 SUV, you could take $25,000 in Section 179 the first year that the vehicle was placed in service, then you could depreciate the remaining $25,000 over the next several years.

The bottom line is, you'll get your deduction, but just not in the first year or two. That's actually a good thing for most people. Even though a lot of clients think they want to write the whole vehicle off immediately, it is often more beneficial to leave some deductions for the following years. For instance, if you're going to be using the expense to offset income that would otherwise be taxed at 15%, wouldn't it be better to save some deduction until next year, when you may be back in a 25% bracket? Also, when you write the whole vehicle off at once, you have no basis remaining in it. As such, if you sold the vehicle, the entire proceeds would be taxable to you. (Of course, you can trade the vehicle and not have to recognize the gain immediately.)

I guess this was a little more verbose than it had to be, but hopefully this was helpful information for you. The whole area of vehicle deductions can get complicated!

Thanks again,

David

 

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