Tax Benefits for Heavy SUVs in 2011

Sports utility vehicles having gross vehicle weight (GVW) of over 6,000 pounds are exempt from the so-called "luxury" automobile tax deduction limitations which generally restrict depreciation and Section 179 expensing to very modest amounts.  If the luxury auto is used 100% for business in 2011, then the maximum write-off would be either $3,060 or $11,060; depending upon whether the auto qualified for bonus depreciation.  To qualify for bonus depreciation, the vehicle must be new, meaning its original use begins with the taxpayer.  Under the 2010 Tax Relief Act, the first-year bonus depreciation amount was raised from 50% to 100% for new property acquired and placed in service after 9/8/2010 and before 1/1/2012.  Luxury auto rules limit the amount of bonus depreciation to $8,000.  Since heavy SUVs are exempt from the luxury auto rules, the full cost of the purchase is deductible in 2011 because of 100% bonus depreciation.

Bonus depreciation is different than Section 179 expensing.  Section 179 expensing is available for new or used vehicles, but is limited in amount and is limited to taxable income.  Section 179 expensing limits were greatly enhanced to $500,000 for 2010 and 2011.  However, a special rule limits the Section 179 expensing amount to $25,000 for heavy SUVs rated at 14,000 pounds of GVW or less.  Therefore, bonus depreciation is generally preferable to Section 179 expensing.

The tax deductions must be reduced if the vehicle is not used 100% for business.  In addition, if the vehicle is not used more than 50% for business, it will fail to qualify for both bonus depreciation and Section 179 expensing.