Congress changed a
tax rule to allow businesses to write off $100,000 of equipment
purchases, including qualifying vehicles, in the first year of purchase.
That's four times the previous limit of $25,000.
I passed on your queries about the Section 179 tax
deduction to Kenneth Vargas, the Internal Revenue Service's spokesman in
Austin, who responded with these answers:
Q. Kelley's Blue Book says the Chevrolet Tahoe
and Ford Expedition weigh over 6,000 pounds, but the company's Web site
lists them as having curb weights of less than 6,000 pounds. What is a
curb weight, and is that the weight the IRS uses to determine whether a
vehicle qualifies for the Section 179 deduction?
A. People have to be real careful. There are salesmen
out there who are selling SUVs and don't know the intricacies of the tax
law and don't know what vehicles really qualify for this deduction.
For purposes of the definition of a vehicle's gross
vehicle weight, the IRS defines it as the curb weight. This is the
weight of the vehicle as received from the manufacturer. That means
without passengers or cargo but with all its standard equipment and full
fuel, oil and coolant tanks.
The IRS will accept as qualifying for the 179
deduction what the manufacturer says is the gross vehicle weight or curb
weight. Request that documentation from the manufacturer. Ask the dealer
for help on this documentation if it is not self-evident.
Gross vehicle weight and curb weight are different
from the vehicle's gross vehicle weight rating, which refers to the
weight of the vehicle and its maximum load of cargo and passengers.
To qualify for the deduction, the IRS also accepts
gross vehicle weight rating for SUVs, trucks and vans. So, if the
vehicle is on a truck chassis and has a gross vehicle weight rating of
more than 6,000 pounds, then it qualifies for the 179 deduction. You
usually can find that number on the sticker inside the driver's side
door.
That information, however, is not in the IRS
publications on this issue. It's mentioned in a two-line sentence in an
internal guidance document.
Q. Do used SUVs qualify for the Section 179
deduction?
A. Yes, but make sure the vehicle meets all other
requirements, including gross vehicle weight and
business use percentage
-- 50 percent or more. Also, there are rules concerning how the purchase
is made, including trade-in allowances, exchanges between relatives, and
gifts and inheritances. See IRS Publication 946, How to Depreciate
Property.
Q. What happens if you take a Section 179
deduction during one year, but don't use the vehicle more than 50
percent for business during the second year?
A. You have to give back some of the deduction because
the assumption was that you would use that equipment for its entire
useful life, even though you took the entire depreciation the first
year?
The normal recovery period for a vehicle is five
years, but you could have equipment that lasts longer or less than that.
If you quit using it for business at least 50 percent
of the time, you have to do a recapture and report that amount as income
on your tax return.
Recapture means you have to go back and recalculate
the depreciation based on how much the vehicle is now used for work.
For details on how to do this, see IRS Publication
946, How to Depreciate Property.
Q. If I bought a truck in 2003 for personal
use, but in 2004 I started using it for work only, can I deduct all or
some of the purchase price on next year's taxes?
A. Yes, but you cannot use a 179 deduction on the
vehicle.
You can depreciate the vehicle as office equipment
under the normal five-year recovery period or use a standard mileage
deduction to offset some of the purchase costs.
The standard mileage deduction is 37.5 cents for
businesses. This is the way many people account for auto expenses for a
mixed-use vehicle. All you need to do is keep a standard travel log to
back up your claims.
Q. When should a business owner claim a
Section 179 deduction on a vehicle purchase?
A. If you had a very profitable year that was an
anomaly, it might be a good strategy to take the full 179 deduction this
year to lower the amount of taxes you pay on the profit.
But if next year looks like it will be good, too, then
you might want to take the depreciation over several years. But you will
have to use another equipment depreciation because you can't carry a 179
deduction over to other years.
Shannon Buggs has completed the personal finance
planning certificate program at the University of Houston. While she
invites comments and column ideas, she cannot offer specific advice
about individual situations. E-mail her at
shannon.buggs@chron.com or
call 713-220-6834.
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