Deducting
Expenses for Business Vehicles
Can I Write Off my SUV?
If you use a vehicle for business purposes, you need to decide which would
be more advantageous - deducting the standard mileage rate or your actual
expenses. That question can easily be answered by the type of vehicle you
drive.
If your business vehicle weighs over 6,000 pounds, it is often more
advantageous to use the actual expenses when computing your allowable
deduction because the depreciation deduction is not limited as it is for
vehicles weighing less. You can also expense up to $102,000 of the cost in
the first year the vehicle is used for business, if the vehicle was
purchased and put into business use by October 22, 2004. For over
6,000 pound vehicles purchased AFTER October 22, 2004, the Section 179
expensing limit was reduced by Congress to $25,000.
The additional
first-year write-off for a vehicle over 6,000 pounds is ONLY available if
the business use of the vehicle exceeds 50%. There is NO write-off
for personal use.
To check if a vehicle exceeds 6,000 pounds when fully
loaded, check the manufacturer's metal information plate that is normally
placed inside the door frame of the driver's side front door.
The standard
mileage rate for business use is 37.5 cents per mile for 2004, 40.5 cents
in 2005. If you bought
a vehicle in 2004 that is eligible for the special 50% depreciation
allowance, the actual expense method may be more advantageous. When making
this choice, it's smart to estimate the amount of your vehicle deductions
for the current year and future years, and make the choice based on your
estimated expenses for the entire time you expect to keep the vehicle --
not just for the first year.
Click here for more
on the Section 179 or bonus depreciation deductions.
One caution before taking that full first-year write-off for that SUV
over 6,000 pounds -- if the business usage of the vehicle ever drops to
50% or less in any year of its use, the "excess depreciation" or extra
first-year write-off is subject to what the IRS calls "recapture."
That means the excess depreciation taken must be reported as ordinary
income subject to tax in the year the business use percentage fell to 50%
or less. Be sure your business use percentage will stay above 50%
before taking the extra first-year write-offs.
