Jeff Gordon Chevrolet Provides Valuable Year-end Tax Tips For Business Owners
Buy a qualified Chevrolet vehicle and put the tax stimulus package to work for you! The 2010 Tax Stimulus Package provides significant tax benefits to business owners. If you purchase an eligible vehicle, potential benefits include immediate eligibility for an expense deduction & an additional 50% bonus of accelerated depreciation.
Many of our customers have requested that we provide them with an updated summary of the rules for 2010 pertaining to the deductions and expensing of
commercial vehicles which are
large SUVs with a gross vehicle weight (“GVW”) over 6,000 pounds,
pickup trucks with a six-foot or longer cargo bed, or large vans with a GVW above 6,000 pounds, which are purchased by businesses and used more than 50% in the business, taking into account changes in the law enacted by the Hiring Incentives to Restore Employment Act of 2010 and the Small Business Jobs Act of 2010.
The Hiring Incentives to Restore Employment Act of 2010 (“HIRE Act”), signed into law on March 18, 2010, extended many of the tax benefits of the American Recovery & Reinvestment Act of 2009 related to expensing certain purchases under IRC §179 for purchases of
SUVs, trucks and vans in 2010. Notably, the HIRE Act did not extend bonus depreciation under IRC §168(k) to purchases after December 31, 2009.
However, subsequent legislation, entitled the Small Business Jobs Act of 2010, signed into law on September 27, 2010, did extend bonus depreciation through the end of 2010, and this extension applies retroactively to vehicles purchased earlier in 2010.
The Small Business Jobs Act also further raised both the maximum expense amount and the phase out threshold amount available for the purchase of qualifying property under IRC §179, above the increase made by the HIRE Act.
Taxpayers that own and use commercial vehicles in a trade or business -- professionals, small business owners, and others – can deduct the cost of such property through asset depreciation deductions on their tax returns. Generally, accelerated depreciation is allowed if the vehicle is used more than 50% in the business.
Section 179 Deduction
A taxpayer is generally allowed to take a current “Section 179” deduction for a limited portion of the purchase price of certain property, rather than depreciating it. This applies, with restrictions, to
automobiles, trucks and vans, and SUVs. Under the Small Business Jobs Act, for purchases in 2010, a taxpayer may take a current deduction for otherwise depreciable Section 179 property used in a business for an aggregate amount of purchases of up to $500,000. If total purchases of Section 179 property for 2010 exceed $2,000,000, the $500,000 Section 179 deduction limitation phases out dollar for dollar and is completely eliminated when purchases exceed $2,500,000.
Without the increased limits provided by the HIRE Act and the Small Business Jobs Act, the 2010 Section 179 limitation would have been $125,000, adjusted for inflation, and would have begun to phase out when total purchases of Section 179 property exceed $500,000, adjusted for inflation. There is, however, a special limitation under Section 179 that applies to certain SUVs. The amount allowed under Section 179 for an SUV with a GVW of more than 6,000 pounds is limited to $25,000 (this amount has been constant since 2004, and remains unchanged by the Small Business Jobs Act). The remainder of the purchase price is eligible for accelerated depreciation and the bonus depreciation deduction.
Example 1: A qualified SUV (GVW greater than 6,000 pounds) was purchased January 1, 2010 for $50,000. Assuming 100% business use, in 2010 the taxpayer would be able to utilize the entire $25,000 Section 179 deduction, leaving a remaining basis of $25,000. The remaining $25,000 of basis is eligible for a 50% bonus depreciation deduction (of $12,500) and the basis remaining after that may be depreciated using the MACRS method. The standard amount of MACRS depreciation on the remaining $12,500 of the basis of this SUV would be $2,500. The total first-year deduction for this $50,000 SUV in 2010 would be $40,000 ($25,000 plus $12,500 plus $2,500).
For purposes of Section 179, in general, a SUV is defined as any 4-wheeled vehicle which is primarily designed or which can be used to carry passengers over public streets, roads, or highways, with a GVW of up to 14,000 pounds. It does not include: 1) a vehicle designed to have a seating capacity of more than nine persons behind the driver’s seat; 2) a vehicle equipped with a cargo area of at least six feet in interior length that is an open area and is not readily accessible directly from the passenger compartment; 3) a vehicle equipped with a cargo area of at least six feet in interior length that is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment; or 4) a vehicle with an integral enclosure, fully enclosing the driver compartment and load carrying device, which does not have seating rearward of the driver’s seat and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. With respect to a truck with a six-foot or longer cargo bed, and certain eligible vans, with a GVW above 6,000 pounds, purchased in 2010, a taxpayer could deduct under Section 179 the full amount of the purchase price, subject to the overall $500,000 limitation. Any purchase price not expensed under Section 179 would generally be eligible for the 50% bonus depreciation deduction, and the remaining basis would be eligible for MACRS depreciation.
Vehicle Deduction Eligibility
There are some limitations to the expense deduction, and one is vehicle eligibility.
Chevrolet vehicles immediately eligible for a $25,000 expense deduction:
50% Bonus Depreciation
The Small Business Jobs Act of 2010 provides a special 50% bonus depreciation deduction on 2010 purchases of qualifying property, extending the bonus depreciation rules that had applied in 2008 and 2009. Qualifying property includes property eligible for the modified accelerated cost recovery system (MACRS) with a depreciation period of 20 years or less. Thus, most vehicles, including SUVs, trucks, and vans, will be qualified property eligible for bonus depreciation. The property must generally be purchased and be placed in service on or before December 31, 2010, and the original use of the vehicle must begin with the taxpayer (i.e., purchases of used vehicles will not qualify).
Chevrolet Kodiak
Each individual’s tax situation is unique; therefore, please consult your tax professional to confirm vehicle depreciation deduction and tax benefits. For more details, visit www.irs.gov, or to calculate your bonus depreciation, visit
http://www.depreciationbonus.org/ Each individual’s tax situation is unique; therefore, please consult your tax professional to confirm vehicle depreciation deduction and tax benefits. For more details, visit www.irs.gov, or to calculate your bonus depreciation, visit www.depreciationbonus.org 1 For vehicles that qualify as sport utility vehicles under the Internal Revenue Code, the $25,000 expense deduction may be available. 2 To comply with Treasury Department regulations, we advise you that any tax guidance contained in this communication is not intended to be relied upon, or written to be used, and cannot be used for the purpose of (i) avoiding penalties that may be imposed under the Interanal Revenue Code or any other applicable tax law, or (ii) promoting, marketing or recommending to another party, any transation, arrangement, or other matter.
