Do Tax Rules Impact Your Vehicle-buying Decision? … Maybe They Should
This year, certain tax rules may be the tipping point in deciding which vehicle to buy. Here are the rules you’ll want to keep in mind if you’re in the market for a new car or truck for your business.
Full write-off for heavy vehicles
If you buy a car for business in 2011, your depreciation deduction is limited to $11,060 if the car is new, or only $3,060 if the car is pre-owned. The limit for a light truck or van is $100 higher. Thus, buying an expensive car or truck won’t give you a substantial immediate tax write-off.
More generous tax rules, however, apply to certain heavy vehicles. Buying an expensive SUV that weighs more than 6,000 pounds may make sense if you factor in the tax write-off. For 2011, you can deduct the full cost of a new vehicle because of the 100% bonus depreciation rule. Usually the first-year write-off for such a vehicle is limited to $25,000 (the Sec. 179 deduction limit for this type of vehicle).
Of course, this type of vehicle tends to be a gas guzzler. Given the rising cost of gasoline, the cost of operating the vehicle could be steep (depending on how much you usually drive).
Tax credits for certain “green” vehicles
If you buy an electric-powered car, such as the Chevy Volt or Nissan LEAF, you may take a tax credit of $7,500. The credit reduces your taxes dollar for dollar. Of course, the Volt is an expensive car, so the credit may not be a significant cost saver. However, if you planned to go green, the credit is a nice bonus.
If you prefer a hybrid vehicle, there’s a tax credit for you too. However, only a few manufacturers’ cars still qualify. You can see which ones do at Fueleconomy.gov.
If you buy the car for business, the credit for electric-powered vehicles and the credit for hybrid vehicles is part of the general business credit; limitations apply.
What you drive depends not only on personal preference—some business owners like sports cars while others prefer pick-up trucks; it also depends in part on tax rules.
After considering the tax breaks for buying a vehicle, you may prefer to lease one. You can fully deduct the lease payments (although there may be a small income add-back, depending on the value of the vehicle).
Talk to your tax advisor before making any vehicle decisions this year.
Tags: business vehicle, buying a vehicle, car, company car, electric-powered vehicles, fuel, FuelEconomy.gov, hybrid vehicle, hybrids, leasing a vehicle, small business, tax credits, tax planning, Taxes, truck