Business Vehicle Depreciation Limits Released for 2012

The IRS recently released the updated version of allowable depreciation limits for business passenger vehicles and light duty trucks and vans placed in service in 2012. Deduction limitations have been increased by about $100 in comparison to those for 2011. The following outlines the 2012 depreciation limits for passenger vehicles and light duty trucks and vans with gross vehicle weight less than 6,000 pounds.

New vehicles–those purchased between the dates of December 31, 2011 and January 1, 2013–are eligible for 50% bonus depreciation in the first year. New vehicles are placed in one of two categories: passenger vehicles or light duty trucks and vans. Depreciation values vary depending on vehicle type and new or used status.

• If you own a passenger business vehicle that is classified as new (purchased between the abovementioned dates), the total allowable depreciation for the vehicle is $11,160 in the first year, $5,100 in year two, $3,050 in year three and $1,875 in all following years.
• If you own a passenger business vehicle that does not qualify for the 50% bonus depreciation, the total allowable depreciation for the vehicle is $3,160 for the first year, $5,100 for the second year, $3,050 for the third year and $1,875 for each succeeding year.
• If you own a light duty truck or van that is classified as new, the total allowable depreciation for the vehicle is $11,360 in the first year, $5,300 in the second year, $3,150 in the third year and $1,875 for each succeeding year.
• Lastly, if you own a light duty truck or van that does not qualify for the 50% bonus depreciation, the total allowable depreciation is $3,360 for the first year, $5,300 for the second year, $3,150 for the third year and $1,875 in all following years.

As a refresher, other deductions remain unchanged and can be claimed for both strictly business vehicles and vehicles that serve both personal and business purposes. For vehicles used strictly for business purposes, you are able to deduct the full cost of expenses and for dual-purpose vehicles you can deduct the costs relative to business use. Furthermore, driving for business purposes is defined as miles driven from your place of employment, or home office, to business meetings and client meetings, but commuting to and from work is not included as a tax-deductible expenses. If your vehicle use does qualify you for deductions, there are two possible methods to keep track of vehicle expenses.

First, the actual expense method requires you to keep track of all car expenses, which you can then deduct. These expenses include, but are not limited to:

• Parking fees and tolls
• Vehicle registration fees
• Lease and rental expenses
• Insurance
• Fuel and gasoline
• Repairs, including routine maintenance
• Depreciation

The IRS requires that you keep adequate records to substantiate your expenses.

Should you not want to keep precise track of all business vehicle expenditures, you can use the second method, the standard mileage rates. This method gives standardized deduction allowances per miles driven. The following are the 2012 updated allowances:

• 55.5 cents per mile for business miles driven
• 23 cents per mile for medical or moving procedures
• 14 cents per mile driven in service of charitable organizations

Taxpayers should be aware that the standard mileage rates are not applicable for a vehicle after using any depreciation method under the Modified Accelerator Cost Recovery System (MACRS) or after claiming a Section 179 deduction. Similarly, should you choose to use the standard mileage rates, deductions are applicable to no more than four vehicles at one time.

For more information about business vehicle deductions, please contact me at (805) 963-7811 or jsheffield@bpw.com.