How do I get a business deduction for an electric vehicle?

December 8, 2003

From:  Sunil
Date:  Thu, 13 Nov 2003


Can you provide some details about deductions for electric and hybrid vehicles in addition to the $2,000 Clean Fuel Deduction?



Date:  Mon, 01 Dec 2003

Hello Sunil,

Internal Revenue Code Section 280F(a)(1)(C)(ii) triples the depreciation limitations that generally apply to luxury automobiles for "purpose built passenger vehicles." A purpose built passenger vehicle is defined by § 4001(a)(2)(C)(ii) as a passenger vehicle produced by an original equipment manufacturer and designed so that the vehicle may be propelled primarily by electricity (an electric vehicle).

Here are the first-year depreciation limits for luxury automobiles. The limitation when bonus depreciation is not elected is $3,060. The general limitation when 30% bonus depreciation is elected is $4,600 (§ 168(k)(2)(E)(i)) plus the $3,060 "base amount" = $7,660 and when 50% bonus depreciation is elected is $7,650 plust the $3,060 "base amount" = $10,710 (§ 168(k)(4)(D).) (50% bonus depreciation may be elected for depreciable business property acquired by the taxpayer after May 5, 2003 and before January 1, 2005.)

According to Revenue Procedure 2003-75, the limitations for electric vehicles are $9,080 "base amount", $22,880 when 30% bonus depreciation is elected and $32,030 when 50% bonus depreciation is elected.

The limitations with bonus depreciation for electric vehicles are academic, because no new electric vehicles qualifying for the higher depreciation deductions are currently being sold. General Motors discontinued its EV-1 electric vehicle.

Hybrid vehicles, like the Toyota Prius, do not qualify as electric vehicles. Therefore, the first-year depreciation limits for hybrid vehicles used for a trade or business are the $3,060, $7,660 and $10,710 amounts that apply for luxury automobiles.

Good luck!
Mike Gray

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