The Time to Buy That Luxury Car May Be Now

A few years ago, Dugan & Lopatka was on the forefront of the nation when we publicly promoted a little know tax loophole that allowed business owners to buy luxury SUVs and vans weighing over 6,000 pounds and avoid the luxury tax since these vehicles could be considered a light-duty truck (Winter 2003 Update).  Our firm was actually mentioned by name at the national tax conference in Washington. No, our loophole isn’t back but favorable tax treatment for luxury autos is back!  If you are considering a new SUV for your business, now may be the time to buy.

Depreciation (including the Section 179 deduction) on business vehicles is limited by annual caps under Section 280F based upon the year the vehicle was placed into Service. Cars used for business are normally depreciated over five years. Under the “luxury” rules, the Internal Revenue Service restricts the amount of depreciation that may be taken each year.

The American Recovery and Reinvestment Act of 2009 (the Act) increased the Section 280F luxury auto depreciation limit by $8,000 for qualifying vehicles placed in service during 2009. The Internal Revenue Service (IRS) announced the depreciation limit for passenger autos first placed in service during 2009 will be $2,960 for the first tax year, or $10,960 taking 50% bonus depreciation into account. The limit for trucks and vans (over 6,000 pounds) will be $3,060 or $11,060 with the 50% bonus depreciation.  Cars costing $14,800 or less and trucks costing $15,800 or less are not subject to the luxury auto limitation.