How can I get a business deduction for an SUV?

December 8, 2003

Subject:  SUV for Business
From:  Victor
Date:  Mon, 24 Nov 2003

I have some questions surrounding purchasing an SUV that weighs over 6,000 pounds for my business.

  1. Aside from the weight requirement and using it 100% for business, what other restrictions or guidelines are there to qualify for the depreciation?

  2. If I finance the car, can I deduct the interest?

  3. Do I have to finance the car under my business name or can it be financed personally?

Thanks!

Best Regards,
Victor

Answer

Date:  Mon, 01 Dec 2003

Hello Victor,

  1. The requirement is not 100% use for business, but more than 50% use. If the business use falls below 50% during the first five years of use, the first-year expense amount is subject to recapture. Reductions from higher percentages (example, 80% to 51%, may also be subject to recapture. Be prepared to document the business use of the vehicle. I recommend that you keep a log accounting for your mileage.

  2. Assuming the car is used 100% for business, the interest is deductible as a business expense. If it's not, the business portion is deductible.

  3. You should consult with a tax professional about your form of business. If the business is a proprietorship, you can finance the vehicle in your name. You can also do the same as an agent for a partnership.

There is a good chance this tax benefit for SUVs will be scaled back to $25,000 next year. People are responding to almost an irrational level by buying Sherman Tanks as business vehicles, when it really doesn't make economic sense. It's the old "flushing tax deductible dollars down the toilet" routine.

I predict the IRS will take a very hard look at any taxpayer who is audited and claims an expense deduction for an SUV to assure the vehicle was in fact used for a trade or business.

Good luck!
Mike Gray

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