There is a lot of confusion over the reason for the importance of the requirement for a business vehicle to weigh more than 6,000 pounds for maximum tax deductions.  I'll give another very short history of this.

Back in 1984, our rulers in DC instigated severe limits on the cost of business vehicles that could be depreciated.  It was called the "Luxury Car Rule," which is still in place today, with slightly higher dollar amounts.  Before that time, vehicles could be depreciated over three years with no dollar limit.  This had to be capped because so many people shot their mouths off about this great tax break and those who weren't using it became so resentful that they pressured Congress to trim it back. 

This is just one classic example of why, if you are benefiting from a certain tax break, you should be happy about that, but keep it to yourself.  Other people do not like hearing about your tax breaks and will make it their mission to deprive you of it; which is what just recently happened with the $25,000 limit for Section 179 on SUVs.  That was a direct backlash from environmental wackos, SUV haters, along with people who resent the fact that business vehicles are tax deductible, while personal ones are not.

At that time, in 1984, there was debate over how to distinguish between a normal passenger vehicle and a more utilitarian utility vehicle, which were normally trucks and vans.  The line was set at 6,000 pounds GVW.  Any vehicle weighing more than that was not subject to the luxury car limits and could be depreciated fully over five years.  It was also extended in interpretations of how to claim the Section 179 expensing election for business equipment. 

While many people, including a lot of tax practitioners, only discovered this rule a short while ago, when the Section 179 limit was raised from $24,000 to $100,000, it has been around for more than twenty years, and has been a part of my seminars, speeches and articles all of that time.       

Business vehicles weighing less than 6,000 pounds do qualify for a Section 179 deduction, but a much smaller amount than the heavier ones.  There are also much lower annual depreciation limits.  

For 2004, brand new business vehicles of any weight may also qualify for the special bonus depreciation; so it's not true that lighter vehicles receive no tax breaks.  They just generate much lower tax breaks than do vehicles weighing more than three tons.

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/01/2004 03:23:00 PM Send this post: