Those Vexing Vehicle Depreciation Rules

It shouldn't be this complex. The client simply wanted to know how much depreciation could be claimed in 2013 if he bought a new vehicle. It required a series of questions from me and a lengthy discussion. Here's what you should know to shorten future conversations on this topic.

THE 6,000-POUND TEST

The tax code severely restricts not only first-year but annual depreciation on any vehicle, whether a car, truck or van, if the gross vehicle weight rating (GVWR) is 6,000 pounds or less. Virtually all cars are under this limit, as well as most smaller trucks, vans and SUVs. For trucks, vans and SUVs, it's officially the loaded GVWR. The GVWR is a federal excise definition, and you can find it on the manufacturer's website or on the plate inside the driver door.

In general, these lighter vehicles are subject to very restricted depreciation deductions. The limit is roughly $3,000 in the first year, $5,000 the second year, $3,000 the third year, and then under $2,000 each year thereafter. It can take over a dozen years to fully depreciate a $30,000 vehicle. Further, these limits assume 100% business use. The deductions shrink proportionately, for example, if it is 75% business use.

NEW VS. USED

The 50% bonus depreciation survived another year into 2013 for new assets (but not used). That means the first-year depreciation cap is bumped up by $8,000. Translation: A new vehicle in 2013 under 6,000 lbs. can produce about $11,000 of first-year depreciation, not the usual $3,000 limit.

OVER 6,000-LB. VEHICLES

The good news is these low depreciation limits don't apply if the GVWR is over 6,000 lbs. Heavier vehicles can be fully depreciated over their 5-year recovery period and qualify for first-year deductions. The bad news is Congress has placed a cap of $25,000 on the Section 179 depreciation allowance (to block $100,000 Hummer write-offs). The $25,000 limit applies to new or used vehicles. And for 2013, a 50% bonus applies if the vehicle is new. For example, a $55,000 new SUV over 6,000 lbs. could produce a first year $25,000 Sec. 179 deduction and another $15,000 of 50% bonus (50% of $30,000 balance after the Sec. 179 deduction), before going to the regular 5-year depreciation schedule on the balance. However, a used SUV could only claim a $25,000 Sec. 179 first year allowance.

THE PICKUP EXCEPTION

If the vehicle is a full-sized pickup truck with at least a six-foot open box and has a GVWR over 6,000 lbs., the Section 179 deduction is unlimited. So, that Ford F-150 or Chevy Silverado with the eight-foot box can be entirely written off in the first year using the Section 179 allowance.

Again, it shouldn't be this complicated!

Editor's Note: DTN Tax Columnist Andy Biebl is a CPA and principal with the accounting firm of CliftonLarsonAllen in New Ulm and Minneapolis, Minn., and a national authority on ag taxation. He contributes to DTN and our sister publication, The Progressive Farmer. To pose questions for upcoming columns, email AskAndy@dtn.com

(MZT/AG)

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