Last September, I wrote a blog about how to get 100% write-off for a new heavy SUV (loaded gross vehicle weight greater than 6,000 pounds) through the use of the bonus depreciation rules in 2011. Well, even though I might still be finishing up tax work for 2011, the rest of the world has moved on to 2012 and, unfortunately, bonus depreciation has been reduced to 50%. The good news is that it is still possible to write-off a significant amount of a heavy SUV in the first year through a combination of deductions. Here’s how….
In addition to the use of bonus depreciation, Section 179 provides for a special deduction of up to $25,000 per vehicle for heavy SUVs. To qualify for Section 179, there are overall expense, qualifying property, and business income limits, so it is important to review those requirements before claiming the deduction.
Finally, after taking Section 179 and 50% bonus depreciation, the remaining balance is depreciated over a 5-year period using MACRS (regular) depreciation, which is 20% in the first year. It is important to note that these deductions are required to be taken in the following order:
• Section 179
• 50% Bonus Depreciation
• Regular Depreciation
To illustrate, a new heavy SUV used 100% for business that costs $60,000 and qualifies for Section 179 could be written-off in 2012 as follows:
Section 179: $25,000
Bonus Depreciation (50% of remaining balance): 17,500
Regular Depreciation (20% of remaining balance): 3,500
Total First-Year Write-Off: $46,000
The remaining $14,000 would be recovered in years 2 through 5 by means of regular depreciation.
Pass this information on to your sales team…it just might just be the tool they need to close a deal.
Edward Hooper, CPA
What if I buy used heavy suv from a dealer? Do same rules apply for used?
Bill,
Used property does not qualify for bonus depreciation. Section 179 (limited to $25,000 for SUVs) and regular depreciation would still apply.
Edward Hooper, CPA
Hello
Can the bonus depreciation be used on a qualifying SUV that has never been tittle, but was used as a mercedes company car? I found several with very little mileage (17-53 miles only). So, they never had an owner. The warranty did start ticking, though.
thanks
To qualify for bonus depreciation , the vehicle must generally be new (original use), rather than used. Use of an automobile by a dealer as a demonstrator isn’t a “use” for purposes of the original use requirement if the demonstrator is held by the dealer primarily for sale to customers in the ordinary course of the dealer’s business.
Edward Hooper, CPA
Ted- I have similar question as Santiago.
I am looking at a car that was never registered
and titled since it was a demo car for the dealership.
It has 9k miles. Would this still qualify as “new”
equipment for my tax purposes?
Thank you.
Hello. I’m interested in a new 2013 toyota highlander hybrid for my business. GVWR is 6150 lbs (the standard gas version is less than 6000 lbs) but its built on a “unibody” car-like platform. Does it qualify for heavy SUV sec. 179 full right-off?
thanks!
AK, As long as the demonstrator is held by the dealer primarily for sale to customers in the ordinary course of the dealer’s business it should still qualify as new.
Edward Hooper, CPA
Eddie,
Car, truck or van (including SUVs and minivans), GVW over 6,000 but not over 14,000 lbs. are limited to a maximum Sec. 179 deduction of $25,000 per vehicle (business use limitation will apply). There are also rules for overall expense, qualifying property and business income limitations that you will need to check to see if you qualify for Sec. 179.
Thank you,
Edward Hooper, CPA
Hello,
If I purchase a vehicle before year-end but from a third-party seller who is out of state, and I will not be back in my home state before year end, is there anything I need to do to still take the deduction? I will have a bill of sale for the vehicle notarized between me and seller and will have paid for the vehicle, and after the sale it will not be registered, titled or driven until 2013. I just want to be sure the vehicle still qualifies for Section 179 in 2012.
Thank you,
Paul
The vehicle needs to be placed into service in 2012 in order to take any kind of deduction in 2012. It doesn’t sound like that is going to happen until 2013.
Thank you,
Edward Hooper, CPA