by Kris Houghton, CPA, Meyers Brothers PC
The 50% additional first-year depreciation deduction enacted as part of the Economic Stimulus Act of 2008 provides for a large increase in the deduction limits for passenger automobiles first placed in service in 2008. Separate limits are provided for those who elect not to claim bonus first-year depreciation. The deduction ceilings for the first two years of a vehicle’s use have actually dropped by $100 this year for those do not elect the additional depreciation.
The maximum deductions listed below are based on 100% business use of the vehicle. If the vehicle is put to some personal use, the maximum deductions must be reduced proportionately.
The depreciation limits for autos (other than light trucks and vans), placed in service in 2008, for which the taxpayer has elected out of a bonus depreciation deduction are as follows:
- $2,960 for the tax year the vehicle is placed in service.
- $4,800 for the second tax year.
- $2,850 for the third tax year.
- $1,775 for each succeeding year.
- If bonus depreciation is elected, the first year expense would increase by $8,000 to $10,960 and all remaining years would be unchanged.
The corresponding figures for light trucks and vans (i.e., passenger autos built on a truck chassis, rated at 6,000 pounds gross (loaded) vehicle weight “GVW” or less) are as follows if bonus depreciation does not apply:
- $3,160 for the tax year the vehicle is placed in service.
- $5,100 for the second tax year.
- $3,050 for the third tax year.
- $1,875 for each succeeding year.
- If bonus depreciation is elected, the first year expense would increase by $8,000 to $11,160 and all remaining years would be unchanged.
Heavier vehicles, such as large SUVs, with a GVW more than 6,000 but less than 14,000 pounds, are not subject to these limitations because they fall outside of the definition of a passenger auto. For these vehicles, not more than $25,000 of the cost may be expensed under Section 179. The balance may be depreciated under the regular rules—including bonus first-year depreciation for 2008—that apply to five-year property.
Vehicles with a GVW greater than 6,000 pounds, built on a truck chassis, with an open cargo area or covered box, not readily accessible from the passenger compartment, of at least six feet in length are not subject to the $25,000 limitation. These vehicles may be depreciated under the regular rules that apply to five-year property, including the first year bonus deduction. This exception can apply to many pick-up trucks but be careful since some “Quad” cabs do not have six foot beds.
While this all sounds great for stimulating the ailing U.S. auto industry, legislators are currently wrestling with competing interests. The “Renewable Energy and Energy Conservation Act of 2008” if passed, would repeal the special $25,000 expense deduction on heavy SUVs and further would subject vehicles purchased after enactment to the regular luxury auto depreciation limits.
Since the rules are complex and ever changing, be sure to consult your tax advisor before consulting your car salesperson to insure the greatest tax benefits.
Article provided by Kristina Drzal Houghton, CPA, MST. Kris is a partner with Meyers Brothers Kalicka, PC, the region’s largest independently owned accounting and consulting firm located in Holyoke, MA