2010 year end vehicle tax tips

Buy a new car

You or your corporation can claim up to $8,000 in bonus depreciation on a new (not used) car purchased and placed in service before midnight on December 31, 2010.

You add the $8,000 to the $3,060 luxury limit for a 2010 limit of $11,060. To get to this limit, you can use a combination of Section 179 expensing and depreciation. You reduce the $11,060 limit by personal use.

Example. If business use is 80 percent, then your limit is $8,848 (80 percent times $11,060). The dealer's demonstrator vehicle qualifies as a "new" car eligible for bonus depreciation.  

Buy a New SUV or Crossover Vehicle with a GVWR of 6,001 Pounds or More

You can qualify for these three tax breaks if you purchase and place in service before midnight on December 31, 2010, a new sport utility vehicle (SUV) or crossover vehicle with a gross vehicle weight rating (GVWR) of more than 6,000 pounds:

– Expensing of up to $25,000
– Fifty percent bonus depreciation on amounts not expensed
– MACRS depreciation on the balance remaining after application of breaks 1 and 2, above

Example. Before midnight on December 31, 2010, you buy and place in service a $50,000 qualifying SUV for which you can claim 90 percent business use. Your business cost is $45,000 (90 percent times $50,000).

Your 2010 write-off is $35,500, computed as follows:

– $25,000 in Section 179 expensing
$10,000 in bonus depreciation (50 percent times $20,000 remaining basis)
– $500 (assuming 5 percent mid-quarter MACRS applies, which is likely), computed as follows: $10,000 remaining basis times 5 percent

Should you desire, you may expense less than the $35,500. The $35,500 is the probable maximum deduction on this vehicle that was purchased in the fourth quarter of the year and represents 90 percent business use.

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