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The tax law wants you to buy a behemoth

A tax provision designed to encourage businesses to buy new machinery to fight the recession spur the recovery has a peculiar, and perhaps unintended, side effect: it makes 2011 a great time to buy a new giant SUV for your business. The Wall Street Journal reports:

The bottom line: This year Congress is running a large "bonus depreciation" special on cars weighing more than 6,000 pounds, such as the Cadillac Escalade and Nissan Armada. Taxpayers may deduct 100% of the car's cost in the first year—subject to the personal use disallowance, of course.

20110516-1IABIZThe new "100% Bonus" depreciation allows taxpayers to deduct the full cost of qualifying new machinery and equipment in the year it is placed in service. These costs are normally capitalized and deducted over a period of several years, rather than all at once. The 100 percent bonus depreciation differs from the similar "Section 179" deduction in that it only applies to new equipment, but it can generate a loss carryback.

The Wall Street Journal reports that BMW, General Motors, Ford, Jeep, Mercedes Benz, Porsche, Honda, Nissan, Toyota and Volkswagen all produce the big vehicles qualifying for the break. A list of such vehicles is posted here.

If you want to take deductions for business use of a vehicle, there are some things to keep in mind:

- The tax law requires you to document your business use. You need to keep a log or calendar documenting your business mileage, including the business purpose and distance for your trips. Commuting doesn't count.

- You can only deduct your depreciation to the extent you use your vehicle for business purposes. If your business use declines below 50 percent any year, you may have to "recapture" prior depreciation as non-cash taxable income.

- Don't buy something just for the deduction. Even after the tax savings, you are still out of pocket for most of the cost of the vehicle.

The TaxProf has more. You can read more about vehicle bonus depreciation here.

Flickr image courtesy Highway Patrol Images under Creative Commons License


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