Article Date:
May 2011

Word Count:



New Law Inadvertently Kills Business Car Depreciation; IRS Rescues Deductions with a Safe-Harbor Escape

The new 100 percent bonus depreciation contains a big trap that eliminates depreciation for five years on your business car. That’s the bad news.


The good news is the IRS recognized this inequitable depreciation-elimination trap and created an escape with its newly issued safe harbor.1


You are not going to say this often, but you are likely to say it when you finish this article: Thank goodness for the IRS!


New-Law Trap


Let’s say you bought a new $20,000 car and placed it in service today. Your new car qualifies for 100 percent bonus depreciation, but since it is a luxury car, your depreciation limit is $11,060 as discussed in last month’s article titled “IRS Releases 2011 Luxury Auto Limits.”


Say you are using this car 100 percent for business. If you claim 100 percent bonus depreciation on this $20,000 car, your deductions under this recently enacted 100 percent bonus depreciation are $11,060 in 2011 and (brace yourself)



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