Tax break for your Prius?  How about a 100% writeoff

for heavy SUVs used entirely for business

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act) made tax breaks for "heavy SUVs" even more generous. Although it may be an unintended result, the limited-time 100% bonus depreciation allowance for qualified property allows taxpayers that buy a new heavy SUV and use it entirely for business to write off the entire purchase price in the placed-in-service year.

Background. For tax years beginning in 2010 and 2011, taxpayers generally may elect to expense up to $500,000 of the cost of eligible personal property used in the active conduct of a trade or business. However, certain depreciation dollar caps apply to "passenger autos," i.e., four-wheeled vehicles manufactured primarily for use on public streets, roads, and highways, and rated at an unloaded gross vehicle weight (GVW) of 6,000 pounds or less. The first-year dollar caps for vehicles bought and placed in service in 2010 were $3,060 for passenger autos and $3,160 for trucks or vans (the 2011 limits haven't been released yet).

Heavy SUVs-those with a GVW rating of more than 6,000 pounds-are exempt from the auto dollar caps because they fall outside of the definition of a passenger auto. For example, the lightest GMC Yukon XL has a GVW of 7,200 pounds.  To deal with this "SUV tax loophole," the American Jobs Creation Act of 2004 imposed a limit on the expensing of heavy SUVs. Not more than $25,000 of the cost of a heavy SUV placed in service after Oct. 22, 2004 may be expensed. These rules apply, with some exceptions, to SUVs rated at 14,000 pounds GVW or less.  However, the non-expensed portion may still be depreciated.

Example: A calendar year taxpayer bought a $50,000 heavy SUV in June of 2010 and used it 100% for business in 2010. It may write off $40,000 of the cost of the vehicle on its 2010 return, as follows:

•  $25,000 expensing deduction, plus
• $12,500 of bonus first year depreciation ($50,000 − $25,000 of expensing × 50% = $12,500), plus
• $2,500 of regular first-year depreciation ($50,000 − $25,000 of expensing − $12,500 bonus depreciation × 20% = $2,500.

Now 100% first-year writeoffs for heavy SUVs. Under the 2010 Tax Relief Act, the bonus first-year depreciation percentage is 100% (instead of 50%) for bonus-depreciation-eligible "qualified property" that is generally (1) placed in service after Sept. 8, 2010 and before Jan. 1, 2012, and (2) acquired by the taxpayer after Sept. 8, 2010 and before Jan. 1, 2012. Autos and trucks qualify for bonus depreciation (assuming business use exceeds 50% of total use).

Thus, a taxpayer that buys and places in service a new heavy SUV after Sept. 8, 2010 and before Jan. 1, 2012, and uses it 100% for business, may write off its entire cost (as 100% bonus depreciation) in the placed-in-service year. There is no specific rule barring this result for heavy SUVs. Thus, if the taxpayer in our illustration above had bought the heavy SUV in, say, October of 2010, it could write off the full $50,000 cost of the vehicle on its 2010 return.