Congress is very open handed with the tax deductions for business owners that buy a new, heavy SUV before the end of the year.
The combination of Section 179 expensing election, bonus depreciation and regular depreciation is powerful in getting big 2013 income tax deductions for business owners.
For example, suppose Bill bought a new SUV for 100% business use and put it in service before Dec. 31, 2013. If he buys it for $ 60,000 and it has a loaded gross vehicle weight of over 6,000 pounds, he can claim up to $46,000 deductions in 2013. That is even if he takes several years to pay for it.
Of course, he can only claim a total of $60,000 depreciation over the years he owns the vehicle, but if he needs big 2013 income tax deductions, he can make the various elections and reduce his income (and maybe self employment taxes) for 2013.
The computation of the depreciation starts with the $ 25,000 Section 179 expensing election depreciation deduction for SUVs. It is capped for SUVs. Plus he can claim $ 17,500 “bonus depreciation” (50% of the remaining $35,000 cost). And then he can claim regular depreciation of 20% of the remaining $ 17,500 tax basis (cost minus the depreciation deductions of $42,500). 20% of $17,500 is $3,500 of normal depreciation expense. The total of $46,000 is $25,000 plus $17,500 plus $3,500.
But what if he really needs a pickup truck instead? If it weighs 6,000 pounds or more loaded and the cargo bed is at least six feet long, he can claim the full cost.
The Section 179 expensing deduction is for personal property whether it is used or new. The maximum Section 179 deduction in 2013 is $ 500,000.
The “bonus depreciation” deduction is only for new property (not just vehicles). The order of claiming those deductions is Section 179 is first (off the top) and then the “bonus depreciation” and then the regular depreciation. Bill could elect not to claim the Section 179 and/or the “bonus depreciation” deductions.
This all sounds like a big deal, but it is really just accelerating deductions into the current year. You can’t claim more total depreciation than the total cost of the item.
Until Congress simplifies our tax laws, this kind of special benefits will continue to complicate our lives and keep CPAs busy. Most CPAs I know support tax law simplification. But until then, the law has many special benefits you can claim to legally reduce your taxes. A famous judge said everyone has the legal right to reduce their taxes as much as the law allows.
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