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Wednesday, August 5, 2009


Question from Steve, Baltimore, Maryland
: What's the income tax write-off if I buy a new vehicle for my business ?


Steve, it used to be that if you bought any new business equipment, you had to "depreciate" it over a set number of years. Nowadays, however, you can probably take advantage of "Section 179" of the IRS Code. Under section 179, 100% of the cost of new business equipment up to a total dollar limit can can be deducted on your income tax return. Originally, this dollar limit was $10,000, but Congress increased it over the years and for 2009 the Section 179 limit stands at $250,000. You can purchase up to $250,000 of business equipment and write it off in the same year!! What a great incentive for small business capital investment!!!!

There, however, some limitations. For one thing, of all the equipment has to be new to you -- it can be new or used -- but "new" to you. Second, as with many tax incentives, if Congress classifies you as a "fat cat," you don't get the tax incentive. As they say, your tax incentive is "phased out." Most "fat cat" phaseouts are based on adjusted gross income. The Section 179 phaseout, however, is based on the total amount of equipment you purchased that year. For 2009, the phaseout begins at $800,000. Obviously, an $800,000 limit doesn't affect a small business that just wants a new delivery vehicle.

For vehicles, however, there are special limitations. Your new vehicle has to be the sort that you would not want to use for personal purposes. If it has a gross weight of 14,000 lbs. or more, you're home free. Otherwise, it has to have a gross weight of 6,000 lbs. AND meet one of these tests to escape the limits:
  • Seats more than 9 passengers behind the driver.
  • Equipped with an open cargo box of at least 6 ft.
  • Equipped with a closed cargo box not accessible from the vehicle's interior
  • Has a fully enclosed driver compartment and load carrying device, AND does not have seating behind driver’s seat, AND has no body section protruding more than 30 inches ahead of the leading edge of the windshield. Whew!!
If the vehicle doesn't meet the above criteria but weighs more than 6,000 lbs., you can still claim the Section 179 writeoff, but it will be limited to $25,000. For example, if you buy a $100,000 Hummer for your business, you write off $25,000 in the first year and depreciate the balance of $75,000 as normal depreciation.

Let me know if you have further questions, Steve!!

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