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Tax advantage of SUV for business
Dear Tax Talk:
We have a ranch without any income. Therefore, it has always
sustained a loss. Now my husband is starting a consulting job that
involves a lot of driving. We already have an SUV for personal use
and plan to buy a second one (a Suburban) solely for his work use.
Can the tax credit for SUVs apply for this?
Rox
Dear Rox:
A ranch without any income always sustaining
a loss might be considered a hobby rather than a business. You should
see my
prior column on whether an activity might be considered personal
rather than a business. A word of warning: The continued losses might
trigger an examination of your return.
The SUV tax break seems to be generating a lot of
buzz. In order to claim the tax break you have to use the SUV in
a business. Your husband can claim the deduction if he's self-employed
or if he's an employee. But there are a couple of wrinkles to be
aware of:
- The truck has to have a gross vehicle weight rating
of more than 6,000 pounds and it has to be used more than 50 percent
in business.
- It can be new or used.
- The deduction is referred to as Section 179 expense
and for 2003 it is increased to $100,000.
- The deduction is limited to the taxpayer's overall
business income.
For example, assume your husband makes $50,000 in
2003 from consulting after all other expenses and the ranch loses
$10,000.
His overall business income is $40,000, which means
that the Section 179 deduction for the Suburban is limited to $40,000.
If the Suburban cost $60,000 and is used 80 percent in business,
the business cost is $48,000 of which $40,000 can be written off
and $8,000 must be depreciated.
If your husband is self-employed, he claims the $40,000
as a Schedule C deduction and everything is great. If your husband
is an employee, the Section 179 expenses are claimed on Form 2106
and carried over to Schedule A as a miscellaneous itemized deduction.
As I discussed in an earlier column, a large
amount of miscellaneous itemized deductions can result in alternative
minimum tax, so that the advantage of the write-off may not be as
great as anticipated.
-- Posted: July 29, 2003
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