Vehicle Expense Deductions

Gregory J Cook, EA, CPA

Gregory J. Cook, EA, CPA+
Accredited Tax Advisor

Past President Alabama Society of Enrolled Agents
Past President Alabama Association of Accountants

   



"Depreciation deductions for most cars and trucks are limited by the "luxury car/passenger vehicle" limitations imposed by the IRS under Code Section 280(f). However, certain vans and trucks are not subject to this restricted write-off. Vehicles with a Gross Vehicle Weight Rating (GVWR) greater than 6,000 lbs. avoid these caps or limits and may be treated like 5 Year machinery and equipment".

If your truck or van exceeds 6,000 lbs in gross vehicle weight rating, the full depreciation deduction is allowed. You can even use the Section 179 expensing election and take up to $100,000 in the first year -- plus the regular depreciation deduction on the remaining balance.

President Bush signed a law on October 22, 2004 that closed "the SUV loophole". Now there is a $25,000 limit instead of the $100,000 limit on Sec. 179 write-off for Sport Utility Vehicles (SUV's).

How can you find out if the vehicle exceeds the 6,000 lb weight test? Take a look at the plate inside the driver-side door jam for (GVWR).

More good news if you lease the vehicle -- the lease inclusion tables do not apply if the weight limits are exceeded. So, you can write-off the entire lease costs (at the business use percentage) and not have to reduce your lease payments by the yearly lease inclusion limitation.

Car and Truck Expenses
If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. You generally can deduct either your actual expenses or the standard mileage rate.

Actual expenses. If you deduct actual expenses, you can deduct the cost of the following items:

Depreciation

Lease payments

Rental fees

Garage rent

Licenses

Repairs

Gas

Oil

Tires

Insurance

Parking fees

Tolls



If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. You can divide based on the miles driven for each purpose.

Example. You are the sole proprietor of a flower shop. You drove your van 20,000 miles during the year. 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense.

Standard mileage rate. Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. You can use the standard mileage rate for a vehicle you own or lease. The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. It is announced annually by the IRS. To figure your deduction, multiply your business miles by the standard mileage rate for the year.

Complete list of trucks, vans and suv's that qualify for the Section 179 tax write-off in the year of purchase.

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Greg Cook


Greg Cook on the Recovery Act ...


The Recovery Act was passed by Congress and signed into law by President Obama on February 17, 2009. The purpose of the $787 billion Recovery package is to jump-start the economy to create and save jobs. The Act specifies appropriations for a wide range of federal programs, and increases or extends certain benefits under Medicaid, unemployment compensation, and nutrition assistance programs. The legislation also reduces individual and corporate income tax collections (to an extent), and makes a variety of other changes to tax laws.

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This Act will have far reaching consequences and we will be dealing with it for years to come (at least until 2018). Twenty-eight different agencies – such as the Departments of Education; Health and Human Services; and Energy – have been allocated a portion of the $787 billion in Recovery funds. Each agency develops specific plans for how it will spend its Recovery Act funds. The agencies then award grants and contracts to state governments or, in some cases, directly to schools, hospitals, contractors, or other organizations. The agencies are required to file weekly financial reports on how they are spending the money and their specific activities related to Recovery funds.


 Read more about The Recovery Act

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