Did you know that large sport utility vehicles (SUVs) are classified as trucks and subject to truck safety requirements? For income tax purposes, they do not qualify as passenger vehicles and are exempt from the luxury-auto dollar caps.
I visited my antique firearm dealer friend recently and noted that there was a new SUV in his parking lot. After he had showed me all the antique firearms he thought I should add to my collection, I told him we needed to review his 2008 income tax estimates.
I know this dealer needs a larger vehicle. He hauls hundreds of collectible firearms to gun shows in the mid-Atlantic region. He also is an avid Civil War reenactor with his own regiment and two huge cannon.
As part of his 2008 income tax review, I explained how his purchase of the SUV will benefit him tax-wise. He paid $50,000 for the vehicle in February. The gross vehicle weight rating is over 6,000 pounds, which exempts it from the luxury-auto rules. This vehicle is used 100% in the antique collectible business. He will benefit from three expense deductions:
• a $25,000 expense deduction
• a $12,500 bonus first year depreciation expense
• a $2,500 regular first-year depreciation.
All this totals $40,000!
His federal and state income tax savings is about $16,000. I know he will plow it back into the business to buy antique firearms – which he will try to sell to me.
Depreciation deduction rules are complex and each person’s situation is unique. Always seek the help of a professional accountant.