Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

As you know, unfavorable depreciation rules apply to most passenger autos and light trucks used in business. For a vehicle acquired in 2014, depreciation deductions are generally limited to the following amounts:

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.

Exception for Certain Trucks and Vans. Certain trucks and vans qualify for much more favorable deprecation rules. The key here is finding a vehicle that is not considered a “passenger auto” under the tax rules. According to IRS regulations, a truck or van is not a passenger auto when it has a Gross Vehicle Weight (GVW—the manufacturer’s maximum weight rating when loaded) above 6,000 pounds. In making this determination, the GVR rating and the manufacturer’s classification as a car, truck, or van are the controlling factors.

Businesses can claim substantial deductions for heavy (over 6,000 pounds loaded gross vehicle weight) trucks and vans used primarily (over 50% of the time) in the business. For example, the maximum first-year depreciation deduction for a $65,000 heavy truck placed in service during 2014 and used 100% for business will generally be $33,000. The maximum first-year depreciation deduction for a new $65,000 passenger auto with gross vehicle weight of 6,000 pounds or less placed in service during 2014 and used 100% for business will only be $3,160 ($3,460 for a light truck or van).

To claim these deductions, you must establish through contemporaneous records (such as a mileage log) that you use the vehicle over 50% of the time for business. If your business usage later falls below 51%, a portion of the deductions previously claimed will need to be recaptured and reported as ordinary income in that year.

As you can see, the deductions for purchasing a heavy trucks and vans for use primarily in your business can be substantial. If you would like more details, please do not hesitate to call.