The government penalizes you if you drive a luxury vehicle. Further, the government’s idea of luxury and the reality do not match.

How much do you think a luxury vehicle costs? Think about that luxury price for just a moment. What’s your number? The government thinks any vehicle that costs more than about $15,000 is a luxury vehicle.

If, in 2007, you buy and place in service a car that costs you more than the luxury limit, your 2007 deductions for depreciation and expensing are limited to a maximum of $3,060.1 This $3,060 luxury limit is then reduced by any personal use.

The luxury limits apply to all the years you use this car for business. If you use the car for business in 2008, your maximum 2008 deduction for depreciation is limited to $4,900. If you paid $40,000 for the vehicle, your depreciation would be so limited that you would still be depreciating this vehicle in 2026. In other words, on a $40,000 vehicle, it would take you 20 years to get your full depreciation deductions.

Compare that to a $1 million airplane: fully deducted in six years. Amazing!

Your business requires a vehicle. You want your bank account to grow, not shrink. We will help you reconcile these two demands by breaking down the luxury limits and showing you where you might have ... Log in to view full article.