With the end of the year approaching you know it is only a matter of time before we start seeing the end of year car sales. Over the next two weeks we will discuss several methods of buying and selling vehicles for your business and how it impacts your 2012 taxes. There are several so we are going to break it up into sections. This week we will share with you the ways that buying a vehicle can impact you tax wise and next week we will share how selling a vehicle can impact you tax wise.
1. Buy a New car
- As a calendar-year taxpayer you or your corporation can claim up to $8,000 in bonus depreciation on a new car purchased and placed in service by the end of the year. Add this to the $3,160 luxury limit and you can deduct up to $11,160 in depreciation and expensing with 100% business use. If business use is only 80% then the limit would be $8,928 (80% x 11,160).
2. Buy a New SUV or Crossover vehicle with GVWR of 6,000+ pounds
- You can qualify for three tax breaks on the purchase of a new SUV or crossover vehicle.
- Expensing of up to $25,000
- 50% bonus depreciation on amounts not expensed
- MACRS depreciation on the balance
Buy a new $50,000 qualifying SUV which has 90% business use. Your business cost is $45,000 = 90% x $50,000. With 90% business use you may write off $35,500 = $25,000 in section 179 expensing + $10,000 bonus depreciation + $500 ((assuming mid-quarter MACRS applies) = $10,000 remaining basis x 5 %.))
3. Buy a Used SUV or Crossover Vehicle with a GVWR of 6,000+ pounds
- Section 179 expensing applies to both new and used qualifying assets. Thus this vehicle type qualifies for expensing of up to $25,000. You may not use bonus depreciation on used vehicles; it only applies to new vehicles. If the vehicle constitutes more than 40% of your personal property assets placed in service during the year you must use a mid-quarter MACRS depreciation method which grants 5% depreciation for the year.
Buy a $30,000 used crossover vehicle that qualifies for Section 179 expensing which has 94% business use. That will give you $28,200 business basis for this vehicle ($30,000 x 94%). You may deduct up to $25,160 = $25,000 in Section 179 expensing + $160 in MACRS depreciation (5% x $3,200 basis remaining after expensing).
4. Buy a Qualifying Pickup Truck
- If you buy and place in service a qualifying pickup truck, new or used, before the end of the year you may deduct up to $125,000 of its cost. For a pickup to qualify it must have a GVWR of 6,000+ pounds, a cargo area (pickup bed) of at least 6’ in interior length which is not easily accessible from the passenger compartment.
You by a $43,000 qualifying pickup truck that you use 97% of the time for business. Using Section 179 you may expense $41,710 (97% x $43,000). If the pickup truck passes the weight test but fails the other truck test it is considered an SUV which is eligible for expensing of up to $25,000.
5. Buy a Business Motor Home
- New and used business motor homes with a GVWR over 14,000 pounds qualify for expensing of up to $125,000 of business cost.
6. Buy a Qualifying Van
- A van must have a GVWR over 6,000 pounds, fully enclose the driver compartment and load-carrying device, not have seating behind the driver’s seat, and have no body section that protrudes more than 30” ahead of the leading edge of the windshield to qualify for expensing of up to $125,000. If the van fails any of the qualifying tests the law deems it an SUV eligible for expensing of up to $25,000.
Whew! Can you still see straight? I know that was a lot to cover but we thought it could be very beneficial to some of you. So if you are debating whether or not to buy a vehicle now you have some extra information for how it can impact you tax wise. So go hit a sale at a dealership, and try to have fun knowing you are adding value to your business & impacting your 2012 taxes. Happy shopping!
Please stay tuned, next week we will share how selling a vehicle can benefit your business and its impact on your taxes.
Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax needs.