I would like to
know how will the depreciation known as the
SUV tax deduction
applies to my situation. Since I make 150K a year 30+80+40) that means
that I pay taxes on that amount. by using the depreciation described in
the article, If I purchase an SUV vehicle for
business use, does that
mean that I will get back $32,000 from the gvn't the first year?
(assuming that I already paid all taxes from my income)
Please advise
Answer:
You might want to review this Bankrate.com article.
"Small businesses benefit from Section 179 deduction"
"However, when it comes to vehicles purchased utilizing the Section 179
break, legislators took back some of the benefit as it related to large
sport utility vehicles. ... That changed on Oct. 22, 2004 when the
American Jobs
Creation Act became law; now only company vehicles weighing 14,000
or more are eligible for the larger deduction amount."
To be eligible for the deduction, you must purchase the SUV for business
use. To qualify as business use, the property must be used more than 50%
of the time for business in the year you place it in service. If you do
not use 100% of the time for business, then you have to prorate the cost
of the property by its business use percentage, which will
correspondingly lower your deduction amount.
"Electing the Section 179 Deduction" IRS
Based on the following article, it appears that the expense and
depreciation schedule appearing at the web site you provided is correct:
"Congress reversed itself last fall with passage of the
American Jobs
Creation Act of 2004 and cinched back the SUV loophole from $100,000
to $25,000 while retaining both the 50-percent bonus deduction and the
five-year depreciation schedule. The deduction is claimed as a
Section
179 expense, meaning you must be in business, filing a Schedule C or
corporate tax return, to claim it."
It is critically important to remember that tax deductions do not offset
an expense 100%. "Even though a business expense can save you 30 to 65%
in taxes -- depending upon your tax bracket and state and city tax rates
-- never spend just to save taxes. It is not a dollar-for-dollar
write-off."
"Self-employed Tax Solutions" by Jean Walker, The Globe Pequot Press
(2005) page 197
Worst case, as a married filing jointly, if you do not have any state or
local taxes, you would effectively save 26% of each year's deduction
amount. You are not going to get back $32,000 in the first year. You
will instead be able to reduce your taxable income by $32,000, which
would result in a tax savings of at least $8,320 and potentially
more depending upon your particular tax situation. However, your refund
would be significantly less than $32,000 in the first year.
"2004 Individual Income Taxes Federal - Form 1040" by Kerry M.
Kerstetter (January 6, 2004)
The following article points out a variety of factors you should
consider before embarking on such a purchase, especially the high
operating costs of these types of vehicles. Also, it is possible
thateven the current more favorable tax treatment will be eliminated as
soon as the end of the year. Therefore, you will want to investigate
your situation and act accordingly as soon as possible.
"Hummer tax break gets hammered" by J. McDonald, Bankrate.com
"Is the SUV Tax Deduction Worth All the Fuss?
The Latest on the SUV Tax Deduction" by Chris Byrd,
Self Employed Web (September 4, 2005)
Before you proceed with such a purchase, I strongly encourage you to
review your tax situation with a tax preparation professional to
determine exactly how much the tax benefit will be worth and whether or
not the benefit offsets the considerable expense associated with these
vehicles. You will also need to be able to prove to the
government your percentage of business use by keeping a mileage log in
the event you are audited. Furthermore, in order to claim the full
deduction, you must only use the vehicle for
business purposes.
Sincerely,
Wonko
Search terms: Section 179 deduction; married filing jointly tax bracket.
SUV Tax Deduction, 6000 lb deduction, American Jobs Creation Act
Request for Answer Clarification:
I have one followup question; what happens if I sell my vehicle after 2
years of use? Do I need to pay back the IRS for anything?
Clarification of Answer:
Depending on the sales price, you may have a capital gain or loss on the
amount that exceeds your cost basis (your purchase price less
accumulated depreciation and the Section 179
deduction). If you have a gain, some of it may be treated as
ordinary income. The amount of the gain will be taxable.
These articles describe this situation:
"If you are claiming depreciation on a business vehicle, see
Publication 463. If the car is not used more than 50% for
business
during the tax year, you may have to recapture excess depreciation.
Include the excess depreciation in your gross income and add it to your
basis in the property. For information on the computation of excess
depreciation, see chapter 4 in [IRS] Publication 463." The publication
is available at www.irs.gov.
"Adjusted Basis" Small Business IRS Tax Map 2004
"Recapture of deduction. If the business use of an asset falls below 50
percent or the property is disposed of, part of the section 179
deduction must be recaptured. The recapture does not affect the total
income that would be reported when the asset is disposed of, but may
affect the income that is considered a capital gain versus ordinary
income."
"Depreciation Rules for 2004" by Dr. Ruby Ward, Utah State
University
(January 2003)
Related Articles:
SUV Tax Deduction for
Dummies
SUV Tax Deduction 2005
SUV Tax Deduction Update -
MUST READ!
SUV TAX DEDUCTION LIST
Section 179-SUV Tax Deduction
SUV Tax Deduction - Section 179
Pitfalls
SUV TAX Loophole
