Depreciation Deductions: Passenger Cars & Light Trucks, Vans and SUVs
Assuming that a taxpayer does not use the IRS standard mileage deduction, for qualifying vehicles used for business purposes and placed in service in 2009 or 2010, taxpayers may deduct various costs including depreciation, registration fees, insurance, and many others under the actual expense method. This article will examine depreciation deductions for certain categories of vehicles.
Passenger Cars
For purposes of calculating depreciation, a car is defined to be any four-wheeled vehicle for use on public roadways, with a gross vehicle weight of 6,000 pounds or less (subject to certain exceptions). Under the American Recovery and Reinvestment Act of 2009, taxpayers may generally take bonus depreciation of $8,000 for newly purchased cars placed in service for business use in 2009 (Congress has extended the bonus depreciation for 2010, as well). Taxpayers may take an additional $2,960 maximum depreciation deduction for 2009 ($3,060 for cars purchased and placed in service in 2010). The 2009 depreciation rates for subsequent years are as follows: $4,800 for the second year; $2,850 for the third year; and $1,775 for each tax year thereafter. Depreciation limits are periodically adjusted for inflation.
Note that the above depreciation amounts assume 100% business use. Depreciation amounts must be reduced proportionately by any personal use percentage that is less than 100% business use and more than 50%. If business use is less than 50%, straight-line depreciation must be used (also reduced proportionately by personal use percentages) and the bonus depreciation amount is not available. Bonus depreciation is also not available for purchases of used cars.
Light Trucks, Vans and SUVs
A light truck, van or SUV that has a gross vehicle weight of 6,000 pounds or less may also qualify for certain depreciation deductions. As with passenger cars, an $8,000 bonus depreciation allowance is available for newly purchased vehicles in this category placed in service in 2009 or 2010. For 100% business use, taxpayers may generally take an additional $3,060 maximum depreciation deduction for 2009 ($3,160 for 2010). 2009 Depreciation rates for vehicles in this category for subsequent years are as follows: $4,900 for the second tax year; $2,950 for the third tax year; and $1,775 for each tax year thereafter.
As with passenger cars, depreciation amounts must be reduced proportionately by any personal use percentage that is less than 100% business use and more than 50%. If business use is less than 50%, straight-line depreciation must be used (also reduced proportionately by personal use percentages) and the bonus depreciation amount is not available. Bonus depreciation is also not available for purchases of used vehicles in this category.
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