Q: I heard I can get a tax deduction of up to $25,000 if I buy an SUV for my business. This sounds too good to be true; if I buy a $25,000 SUV in December, can I take a tax deduction for the entire cost of the SUV in 2009? What's the deal?
You can get a tax deduction of up to $25,000 in Section 179 depreciation by purchasing and using a new SUV in your business before the end of 2009. It sounds crazy but it is true; the government wants to encourage purchases of SUVs (why, I'm not sure), and to help businesses buy these vehicles the IRS will allow you to accelerate the depreciation on the vehicle up to $25,000. under the provisions of Section 179 of the Internal Revenue Code. In other words, you can deduct almost the entire cost of the vehicle in the first year you use it.
Why Section 179 Depreciation is so Good for Your Business
Normally, depreciation is deducted as an expense to the business over the life of the equipment or vehicle. But Section 179 allows you to accelerate the depreciation, taking all of the expense of the purchase in the first year. This is obviously a huge advantage to a business, because it reduces taxable income by the full amount of the purchase. A $25,000 vehicle would normally be expensed over several years, but if you qualify for the Section 179 depreciation deduction, you can take the entire depreciation allowance in the first year.
Vehicle Requirements
Before you run out to buy an SUV, you should know about the requirements for this depreciation deduction:
- The IRS says the vehicle must be "a 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight."
- The $25,000 limit does not apply to any vehicle:
- Designed to seat more than nine persons behind the driver's seat,
- Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible directly from the passenger compartment, or
- That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.
- Designed to seat more than nine persons behind the driver's seat,
More Requirements and Restrictions
- The SUV must be new, not used.
- You can't expense (deduct) more than the cost of the vehicle.
- You must put the vehicle "into service" (use it in your business) by December 31. If you don't use it, you can't get the deduction, so make sure you can prove the vehicle was used in your business by the end of December.
- You can only deduct the business use of the vehicle, not personal use. So if the vehicle is used 50% for business and 50% for personal use, only 50% of the cost can be deducted.
- Although I could not find a specific statement by the IRS, you probably cannot deduct more than your net income for the year. So if your net income is $20,000, you cannot use the $25,000 deduction to generate a tax loss for the year. Check with your tax adviser on this.
What SUV Should I Buy?
If you have decided that an SUV would be a great purchase for your business, your next question might be: Which one should I buy? About.com's Guide to SUVs Jason Fogelson has some suggestions for the best of the 2010 model SUVs which, of course, are in dealer showrooms now. Be sure the SUV you are looking at meets the weight requirement before you buy it.
Disclaimer: Remember that I am not a tax attorney or CPA and I am not providing tax advice. I also don't know your specific situation, which might cause this deduction not to be applicable in your business. Before you make any decisions to buy an SUV to take advantage of the Section 179 deduction, check with your tax adviser.
