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 have probably heard, businesses can claim substantial deductions for heavy (over 6,000 pounds loaded gross vehicle weight) SUVs, trucks, and vans used primarily (over 50% of the time) in the business. For a heavy SUV, the business can deduct up to $25,000 of the SUV’s cost in the year it is purchased. Also, the rules that limit the amount of annual depreciation allowed on passenger automobiles do not apply to these heavy SUVs. This means that, for new vehicles placed in service in 2013, 50% of the remaining cost of the heavy SUV can be written off as bonus depreciation in 2013, with the balance written off over five years.

All this can add up to a substantial first-year deduction. For example, the maximum first-year depreciation deduction for a new $65,000 heavy SUV placed in service during 2013 and used 100% for business will generally be $49,000. 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 2013 and used 100% for business will only be $11,160 ($11,360 for a light truck or van).

Under tax law, the term heavy SUV means an SUV, truck, or van that has a gross vehicle weight rating—the manufacturer’s maximum weight rating when loaded to capacity—above 6,000 and less than 14,001 pounds. However, a vehicle that otherwise meets this definition is not classified as a heavy SUV (and, thus qualifies for even more favorable rules) if any of the following apply:

• It is equipped with a cargo area of at least six feet in interior length. The cargo area cannot be readily accessible directly from the passenger compartment, but it can be either open or enclosed by a cab. Many pickups with full-size cargo beds will qualify for this exception, but “quad cabs” and “extended cabs” with shorter cargo beds may not qualify.
• It can seat more than nine passengers behind the driver’s seat (such as hotel shuttle vans).
• It has an integral enclosure that fully encloses the driver’s compartment and load carrying device, does not have seating behind the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield (such as delivery vans).

For these heavy non-SUVs, the full expensing deduction ($500,000 for 2013) may be available. This means that businesses will often be able to write off the full cost of the vehicle in the year it is purchased.

Unless Congress takes action, bonus depreciation won’t be available after 2013. Furthermore, the $500,000 full expensing deduction will drop to $25,000 after 2013. So, if you are on the fence about buying a heavy vehicle (SUV or non-SUV) this year or next, it may make sense to do it sooner rather than later.

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 SUV (or non-SUV) for use primarily in your business can be substantial. If you would like more details, please do not hesitate to call.