Luxury Car Rules May Limit Vehicle Write-Offs

Unfortunately, if you deduct actual expenses for business use of your car, you probably find your write-offs for depreciation restricted due to so-called luxury car limitations. And most any cars (including trucks or vans) fit the IRS definition of a "luxury vehicle," regardless of their cost. If a vehicle is four-wheeled, used mostly on public roads, and has an unloaded gross weight of no more than 6,000 pounds, the car is considered a "luxury vehicle." 

To see how this works, let’s hypothetically say you and an associate each bought a car. Your car costs $50,000 while your associate’s costs $32,000. You both use your vehicles 75% for business. Cars are in the 5-year life depreciation category and the first-year depreciation for 5-year life items is 20%.  However, your depreciation deduction for the year (including any choice to expense part of the car’s cost) will be subject to the first-year "luxury vehicle" limitation, which is $3,060 for 2011 (same as 2010)..  However, there is a special 100% bonus depreciation allowance for 2011 which boosts the “luxury auto limitation” by $8,000 to a total of $11,060 for 2011 (the same as for 2010). The limit is $200 more for trucks and vans for 2011 ($100 more for 2010). The following are comparisons without utilizing bonus depreciation, electing only 50% bonus depreciation and utilizing the full 100% bonus depreciation.

Vehicle Depreciation Comparison