Truck and SUV Depreciation for 2013

 

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In our last post on auto depreciation we discussed the depreciation limits for most autos and trucks weighing less than 6,000 pounds. Today let’s look at the rules for larger trucks and SUVs.

Depreciation

A truck, van, or SUV with a gross (loaded) vehicle weight rating (GVWR) over 6,000 pounds is not subject to the “luxury auto” depreciation limits. For most taxpayers, these vehicles will be considered 5-year “MACRS” property for tax depreciation, and the cost will be deductible according to this schedule:

Section 179 expensing on SUVs

• 5-year property is actually depreciated over 6 years because the IRS only allows partial depreciation in the first year.
• The above percentages are based on the “half-year” convention. If your fixed asset purchases were heavier in your 4^th quarter, the “mid-quarter” convention (and different percentages) might apply.
• Depreciation is reduced by the percentage of personal use of the vehicle. Commuting is considered personal use.
• Vehicles used less than 50% for business purposes use different depreciation methods.

The Section 179 expense deduction on SUVs is limited to $25,000. For this purpose an SUV is defined as any 4-wheel vehicle that is:

• Primarily designed to carry passengers over public roads, and
• Has a gross vehicle weight rating over 6,000 pounds and no more than 14,000 pounds.

An SUV does not include any vehicle that:

• Is designed to have a seating capacity of more than nine persons behind the driver’s seat, or
• Is equipped with a cargo area of at least six feet in interior length that is not readily accessible from the passenger compartment.

The general Section 179 limitations also apply.

Section 179 expensing on heavy trucks

For vehicles over 6,000 pounds GVWR which do not fall under the definition of SUV above, the full cost of the vehicle can be expensed under Section 179, subject to the general Section 179 limitations.

Bonus depreciation

50% bonus depreciation can be taken on SUVs and heavy trucks, subject to the general bonus depreciation rules.

Example

ABC Company, a calendar-year taxpayer, purchases a new vehicle for $45,000 and places it in service in July, 2013. The vehicle’s GVWR is over 6,000 pounds and it meets the definition of SUV. ABC has taxable income of $50,000 in 2013.

The total deduction in 2013 for the vehicle is $37,000:

• Section 179 expense of $25,000, plus
• Bonus depreciation of $10,000 ($45,000 – $25,000 Sec. 179 = $20,000 X 50% = $10,000)
• Regular depreciation $2,000 (($45,000 – $25,000 Sec. 179 – $10,000 bonus = $10,000 X 20% = $2,000)

The above information covers the basic elements of cost recovery for SUVs and heavy trucks. Many considerations go into each decision to acquire business assets, and many involve non-tax factors. However, tax considerations should play a role; accelerated tax benefits may enable you to obtain the property you need earlier and at reduced after-tax costs.