If you are self-employed or own a business, you may or may not know about tax code 179. If you want to get a HUGE tax deduction on THIS YEAR’S return, you need to buy a full-size truck or SUV before the end of the year. PLUS, with the huge rebates and deep dealer discounts, you win all the way around if you qualify. I can’t stress enough the need to talk to your CPA on this issue, it is complex to say the least. But here is how it works in general terms.
For sure, vehicles and other equipment are traditionally large expenditures for any business enterprise. Typically, if business property has a useful life of more than one year, the cost must be spread across several tax years as depreciation with a portion of the cost deducted each year.
In many cases, there is a way to immediately receive these income tax benefits in one tax year. The provisions of IRS code section 179 allow a sole proprietor, partnership, or corporation to fully expense tangible property (new or used) in the year it is purchased and placed in service. This means that if you purchase a qualifying vehicle the last day of the year and place it in service that day, then the business miles driven that day divided by the total miles driven will be your business use percentage for determining the amount of the tax deduction for that year.
The tax law changes over the past few years have made this option more appealing by dramatically increasing the amount that can be written off. These changes that were first made in 2003 and then extended annually means that businesses can write off more of their capital expenditures through 2011.
Under current law for the year 2011, a business can expense $250,000 of capital expenditures up to an overall investment limit of $2M. The only catch is that the expenditure has to be used greater than 50% for business use and placed in service in the current year. Generally vehicles that weigh over 6,000 lbs qualify for this revision for immediate expensing. A special $25,000 limit applies to certain SUVs. Trucks do not have this limitation.
Many of the popular vehicles of today qualify. All large SUVs easily weigh more than 6000 pounds, like the Escalade, Suburban, Yukon, Expedition and QX56. Today, all the half-ton trucks and larger qualify with no problem. But you don’t have to go to the huge SUVs to get this deduction. Buick Enclave, GMC Acadia, Ford Explorer and Chevy Traverse qualify as do many of the Range Rover, Lexus, and Mercedes SUV models.
In lieu of this provision, new property used in a trade or business can qualify for 50% bonus depreciation for property acquired and placed in service during 2008, 2009, 2010 and 2011. Be sure to check with your CPA or tax expert before you purchase. It amazes me however, how many CPAs have to look this provision up. If you qualify and can make a purchase by December 31, 2011 it can be a significant savings on your 2011 taxes.