Law Allows 100% Bonus Depreciation for Luxury Cars in 2011

June 27, 2011 by  Filed under: Taxes 

In December 2010, Congress passed the 100% Bonus Depreciation Law after a bipartisan compromise deal. The law is a temporary provision that runs for the 2011 tax year only. The bonus depreciation allows business owners to deduct the whole cost of purchasing certain qualifying new equipment in the year of purchase. In other words, as opposed to depreciating a portion of the cost of the equipment every year, the law allows a bonus full cost depreciation of the equipment in 2011. Included in the list of qualifying equipment are vehicles which weigh more than 6,000 pounds.

Luxury Cars Qualify For Bonus Depreciation

Under the 100% Bonus Depreciation rule, various new luxury cars bought in 2011 qualify for full depreciation in 2011. Some of the luxury cars that qualify for this deduction include Porsche Cayenne Turbo that retails at about $106,000.00, the Ford Lincoln Navigator that retails at about $62,635.00, and the BMW X6 M that goes for about $89,200.00. These cars must be used completely for business purposes to qualify for the 100% deduction.

Similar Law Repealed in 2003

This is not the first time that a law has legalized the writing-off of luxury cars for business purposes. In 2003, Section 179 of the U.S. Tax Code provided for the immediate write-off of qualifying capital expenditures for small businesses. The cap for the allowable capital expenditure to qualify for write-off was set at $100,000.00. When the law was passed, businesses and self-employed individuals, including consultants such as lawyers and doctors, took advantage of the law to purchase expensive luxury cars as business cars and wrote off the cost. This event resulted in an outcry from various activists and the public at large.

Allowing for the write-off of luxury business cars was seen by many as being frivolous. This tax loophole came to be known as the “Hummer loophole.” Following the outcry and the obvious frivolous use of this loophole, this law was repealed to limit the write-off for cars weighing between 6,000 and 14,000 to $25,000.00. This change enabled the exclusion of luxury cars for write-offs. However, now under the 100% Bonus Depreciation rule, the same loophole seems to have been returned into the tax codes. Some of the activist and organizations that fought for the repeal of the 2003 “Hummer Loophole” are now shocked that Congress could pass such a law with total disregard of what transpired with the passing of the prior law.

Caution on Sale of the Cars

For business individuals and for consultants who qualify for the bonus depreciation, it may be time to consider an upgrade for your business car, irrespective of the moral questions regarding this law. However, tax consultants warn those who take this route to be aware of the future tax implications of taking the write-off. If you purchase the vehicle and take a 100% depreciation deduction, you need to be aware that you will have to pay the taxes deducted if you were to sell the car at a later date.

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. / Tel:888.321.6188

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