The IRS issued final regulations in June 2004 that retroactively increased the allowed depreciation on certain light weight trucks, including SUVs, and vans. Affected taxpayers must file amended tax returns by December 31, 2004 to take advantage of the increased deduction. Since 1986, the depreciation deduction available on vehicles that cost more than a statutory threshold, currently at $18,000, has been reduced under the so called “Luxury automobile” rules. In spite of the name, luxury automobiles included all vehicles but exempted certain heavy weight vehicles such as trucks, including SUVs, which have a gross vehicle rating in excess of 6,000 pounds.
In July, 2003, the IRS issued temporary regulations that excluded additional classes of vehicles from the definition of “luxury automobiles.” The exclusion applied to trucks, SUVs or vans regardless of their weight. This was modified so that it was not likely to be used more than minimally for personal purposes. The example provided in the regulations was a van that had been modified to haul cargo and had limited seating space. The temporary regulations only applied to vehicles placed in service after July 6, 2003.
The final regulations have been modified to apply to all eligible vehicles regardless of the date in service. Affected taxpayers may file amended returns for open years reflecting the additional depreciation deduction. For example, a business van purchased in 2001 and depreciated under the previous rules would have resulted in depreciation deductions totaling $10,910 for 2000, 2002 and 2003. Under the new rules, amended returns can be filled reporting additional depreciation deductions of $6,890. However, amended returns must be filled by December 31, 2004 for all applicable years. As an alternative to filling amended returns, the regulations do provide an option for taking the deduction prospectively.
Kerry L. Lorincz, CPA
