To be eligible for the deduction, you must purchase the SUV for
business use. To qualify as business use, the property must be used
more than 50% of the time for business in the year you place it in
service. If you do not use 100% of the time for business, then you
have to prorate the cost of the property by its business use
percentage, which will correspondingly lower your deduction amount.
"Electing the Section 179 Deduction" IRS
http://www.irs.gov/publications/p946/ch02.html#d0e2017
Based on the following article, it appears that the expense and
depreciation schedule appearing at the web site you provided is
correct:
"Congress reversed itself last fall with passage of the American Jobs
Creation Act of 2004 and cinched back the SUV loophole from $100,000
to $25,000 while retaining both the 50-percent bonus deduction and the
five-year depreciation schedule. The deduction is claimed as a Section
179 expense, meaning you must be in business, filing a Schedule C or
corporate tax return, to claim it."
It is critically important to remember that tax deductions do not
offset an expense 100%. "Even though a business expense can save you
30 to 65% in taxes -- depending upon your tax bracket and state and
city tax rates -- never spend just to save taxes. It is not a
dollar-for-dollar write-off."
"Self-employed Tax Solutions" by Jean Walker, The Globe Pequot Press
(2005) page 197
Worst case, as a married filing jointly, if you do not have any state
or local taxes, you would effectively save 26% of each year's
deduction amount. You are not going to get back $32,000 in the first
year. You will instead be able to reduce your taxable income by
$32,000, which would result in a tax savings of at least $8,320 and
potentially more depending upon your particular tax situation.
However, your refund would be significantly less than $32,000 in the
first year.
"2004 Individual Income Taxes Federal - Form 1040" by Kerry M.
Kerstetter (January 6, 2004)
http://www.taxguru.org/incometax/Rates/1040-04.htm
The following article points out a variety of factors you should
consider before embarking on such a purchase, especially the high
operating costs of these types of vehicles. Also, it is possible that
even the current more favorable tax treatment will be eliminated as
soon as the end of the year. Therefore, you will want to investigate
your situation and act accordingly as soon as possible.
"Hummer tax break gets hammered" by J. McDonald, Bankrate.com
http://www.bankrate.com/brm/itax/biz_tips/20030403a1.asp
"Is the SUV Tax Deduction Worth All the Fuss? The Latest on the SUV
Tax Deduction" by Chris Byrd, Self Employed Web (September 4, 2005)
http://www.selfemployedweb.com/suv-tax-deduction-2005.htm
Before you proceed with such a purchase, I strongly encourage you to
review your tax situation with a tax preparation professional to
determine exactly how much the tax benefit will be worth and whether
or not the benefit offsets the considerable expense associated with
these vehicles. You will also need to be able to prove to the
government your percentage of business use by keeping a mileage log in
the event you are audited. Furthermore, in order to claim the full
deduction, you must only use the vehicle for business purposes.
Sincerely,
Wonko
Search terms: Section 179 deduction; married filing jointly tax bracket |
Clarification of Answer by
wonko-ga
on
06 Nov 2005 10:38 PST
Depending on the sales price, you may have a capital gain or loss on
the amount that exceeds your cost basis (your purchase price less
accumulated depreciation and the Section 179 deduction). If you have
a gain, some of it may be treated as ordinary income. The amount of
the gain will be taxable.
These articles describe this situation:
"If you are claiming depreciation on a business vehicle, see
Publication 463. If the car is not used more than 50% for business
during the tax year, you may have to recapture excess depreciation.
Include the excess depreciation in your gross income and add it to
your basis in the property. For information on the computation of
excess depreciation, see chapter 4 in [IRS] Publication 463." The
publication is available at www.irs.gov.
"Adjusted Basis" Small Business IRS Tax Map 2004
http://www.missouribusiness.net/irs/taxmap/pubs/p551-001.htm
"Recapture of deduction. If the business use of an asset falls below
50 percent or the property is disposed of, part of the section
179 deduction must be recaptured. The recapture does not affect the
total income that would be reported when the asset is disposed of, but
may affect the income that is considered a capital gain versus
ordinary income."
"Depreciation Rules for 2004" by Dr. Ruby Ward, Utah State University
(January 2003) http://extension.usu.edu/files/publications/Depreciation.html
Sincerely,
Wonko
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