Bonus Depreciation

 

 Today TaxMama hears from Scott in the TaxQuips Forum with this question.  “How long would you have to keep a business vehicle to take advantage of bonus depreciation deductions? What if I sold a new business use vehicle after three years, are there penalties?

Hi Scott,

When it comes to bonus depreciation and Sec 179 depreciation for vehicles, you must always hold the vehicle AND use it for business more than 50% if the time for 5 years.

For bonus depreciation, in years when it’s available, the vehicle you buy must be new. For Sec. 179 depreciation, the vehicle may be used.

Note: We don’t have bonus depreciation in 2011. We DO have Sec 179:

Qualified property must also meet all of the following tests.

  • You must have acquired qualified property after December 31, 2007, and before January 1, 2009. If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify.
  • Qualified property must be placed in service before January 1, 2010 (before January 1, 2011, for certain transportation property and certain property with a long production period).
  • The original use of the property must begin with you after December 31, 2007.

If you only use it for 3 years, you will have to pay back the 2/5 or 3/5 depreciation, which was taken prematurely.

So if you only plan to keep a car for three years at a time, either avoid the bonus depreciation – or include the extra taxes in your tax budget for the third year.

 And remember, you can find answers to all kinds of questions about depreciation and other tax issues, free. Where? Where else? At www.TaxMama.com.

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2 thoughts on “Bonus Depreciation

  1. Pingback: Ask TaxMama Issue 605 Happy Summer | taxmama |

  2. Mike Reed says:

    The 100% bonus depreciation is for purchases after Sept. 8, 2010 and before Jan,. 1, 2012. Thus we will have bonus depreciation available for 2011.

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