From: Sacramento, CA
Dear TaxMama,
Please explain the differance between taking the 179 Election (SUV
Tax Credit) everyone is talking about and taking the full write off of
my payments, insurance, fuel, and repairs that I already take being a
buisness owner?
I do own another vehicle so I take 100% of the cost of this vehicle.
I am just not getting it!
Terri
Hi Terri,
Are you feeling bewildered? Wondering what all the excitement is about?
Are they all simply nuts...making more of this than it really is? Like the
usual media circus?
Well, there's actually something to it. Right now, you're taking 100% of
the operating expenses of the car, you say. (Really? You NEVER use it for personal
use, like going to supermarket, or running a quick errand?) Never mind. For
the sake of this discussion, we believe you.
So, how much more can you take than 100%?
That's not where the excitement is.
The 100% deduction people were getting for SUV's - only if they weigh over
6,000 pounds - is for the purchase price of the car.
Right now, for a regular vehicle, even though you get 100% of the operating
costs, you only get to depreciate a limited dollar amount of the value of the
car each year. You'll find the 2003
limits here. The 2004
limits are here. For most cars, you can write off a limit amount of the
purchase price each year. The first year, you get about $10,000. After that,
it drops to less than $5K, and drops until you deduct only $1,675 each year.
With a 6,000 pound car, until 10/22/04, you could have deducted the whole
purchase price (up to $102,000) in the first year. Then if it cost even more
than that, you could deduct the rest, over 4 more years.
After October 22nd, the limit to the first year's depreciation dropped to
only $25,000. With the rest of the cost being deductible over 4 more
years.
See, that's what the excitement was about - how to deduct the purchase
price of the car, not the operating expenses.
I go into a great deal of detail, and walk you through the entire automobile
depreciation computation in Small
Business Taxes Made Easy. But, even then, I admit, you shouldn't try it
without a safety net. Feel better now?
Best wishes,
Eva Rosenberg, MBA, EA
