A Huge Tax Saving Now Available for Business Car Purchase

July 29, 2011 by  Filed under: Taxes 

For the 2011 tax year, the tax code allows for a huge tax deduction for cars bought and used for business purposes. Under the bonus depreciation tax relief, owners of qualifying business use cars bought after September 8, 2010 all the way to January 1, 2012 can write off up to 100% of the cost of the car, subject to certain qualifications. Therefore, if you have ever planned on having a new car for your business, this may be the ideal time to purchase one, as this tax opportunity allows for significant savings.

100% Write Off

Cars that weigh more than 6,000 pounds qualify for a 100% bonus depreciation deduction under this tax break. Customarily, when a car is purchased for business purposes, the business is allowed to deduct a depreciation percentage every year for several years to recover the cost of the car. However, for these qualifying cars, the business owner does not need to deduct the car cost over several years and can now deduct the whole amount on the year of purchase (if the purchase is done within the aforementioned period). Various car manufacturers have a car that qualifies for this 100% bonus depreciation. These manufacturers include Mercedes-Benz, Porsche, Honda, Ford, Toyota, Nissan, and General Motors. These qualifying cars are mainly expensive and luxury 4 x 4 vehicles and therefore, get a huge cost deduction. The Porsche Cayenne Turbo for example, retails at about $106,000, while the BMW X6 M is retailing at $89,200. These are huge savings for any business and therefore, worth considering.

Lower Write-Off for Smaller Cars

Though the heavy cars weigh over 6,000 pounds get the lion’s share of this tax holiday, Uncle Sam has not left out the smaller cars. Cars that weigh below 6,000 pounds and cost over $15,300.00 get a first year depreciation bonus deduction of $11,060.00, which is about 72% of the car value. For cars that cost over $30,625.00, the first year bonus depreciation is even higher.

Business-Use Cars

To qualify for this temporary bonus depreciation, a car has to be fully used for business purposes. However, you can also apportion the business use of qualifying new cars and deduct the bonus depreciation for this business proportion. For example, if you buy a car for $100,000.00 that qualifies for the 100% depreciation deduction, and you use the car 80% for business and 20% for personal use, then you will deduct $80,000 (80% of the cost of the car). Business apportioning is especially important when considering distance covered from home to your work place, as this is considered personal use and therefore, cannot be deducted.

In Case of a Sale

When purchasing these cars that qualify for this bonus depreciation, you need to remember that when you sell these cars at a future date, you will need to reimburse the depreciated amount to Uncle Sam. In other words, the whole sales price of the car will be considered as a capital gain and you will need to pay taxes on the whole amount. If you apportioned the business element and deducted this, then you can deduct the portion cost for personal use from the sale’s price before calculating the due taxes.

Depreciation and Standard Mileage Deduction

Another important note when seeking to make this bonus depreciation claim is to ensure that you do not make the standard mileage deductions. The standard mileage deduction is used to calculate the cost of business car expense in lieu of the actual car expenses incurred. In other words, as opposed to calculating the fuel costs, insurance costs, and other car maintenance costs, and then apportioning for the business before making deductions, you can simply apply the standard mileage rate and deduct this amount. However, if you are seeking to apply this bonus depreciation or any other depreciation deductions for that matter, you cannot use the standard mileage deduction and have to calculate the actual costs incurred.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA.


You have permission to republish and use this article in your newsletter,website,or blog as long as you leave the article fully intact, and include this resource box at the end of the article.

Article Source:

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!

You must be logged in to post a comment.

Prev Post:
Next Post: