Little-Known Tax Deductions on Crossover Vehicles
Crossover vehicles generally are built on a passenger-car platform (a unibody chassis). That makes them tax-deductible weird.
Why weird? For tax-deduction purposes, the crossover vehicle is either a passenger car or a light truck, depending on its vehicle attributes. It does not need a truck chassis to be a truck.
First-year tax deductions on a truck can vastly surpass first-year tax deductions on a car.
Car. Tax law imposes depreciation limits on cars. Lawmakers penalize cars costing as little as $15,800 by considering them luxuries and limiting depreciation write-offs, often severely.
Truck. Actually, the crossover vehicle does a two-step in the truck category. First, it has to qualify as a tax-law-defined truck. Second, once it’s a truck, it then by law becomes a sport utility vehicle (SUV) for tax-deduction purposes.
Once the two-step is complete, the tax write-off for the SUV crossover vehicle is either
a big tax deduction with Section 179 expensing of up to $25,000; 50-percent bonus depreciation on the Section 179 basis reduction; plus regular depreciation if the SUV has a Gross Vehicle Weight Rating (GVWR) greater than 6,000 pounds (think big truck, big deduction), or
a far lesser tax deduction because tax law imposes luxury truck limits like the auto luxury limits if the GVWR is equal to or less than 6,000 pounds.
Therefore, if you are thinking of buying a crossover vehicle such as a Volkswagen Touareg, Porsche Cayenne, Mercedes-Benz R-Class Wagon, Nissan Murano, or Ford Escape, you need both a GVWR of 6,001 pounds or greater and a tax classification as a truck to qualify for big first-year deductions.
What Is GVWR?
The GVWR is the loaded weight of the vehicle. Curb weight generally refers to the vehicle with no load. The GVWR includes:1
the weight of the crossover vehicle,
government-declared weights for people who can ride in the crossover vehicle, and
a government-declared weight based on the cubic feet of the cargo area.
Manufacturers post the GVWR on a metal or paper plate on the driver-side door or door frame. Thus, one easy way to identify the GVWR is simply to open the driver’s door and take a look.
Big Tax Write-Off
Big tax deduction. Say you buy a $47,000 crossover vehicle that tax law classifies as a truck. Say further that you use the crossover truck 100 percent for business. If the GVWR is 6,001 pounds or more, tax law allows you to deduct up to $38,200 this year.
Spreading the tax deduction. If the GVWR is 6,000 pounds or less, your first-year write-off is limited to $11,160 ($8,000 Limited Bonus Depreciation plus $3,160 “Luxury Auto” Depreciation). That’s part of the bad news. For the remaining $35,840, your luxury limited depreciation write-off takes an additional 17 years to fully depreciate the vehicle.
In this example, the combination of (1) truck status and (2) GVWR of 6,001 pounds or more produces a potential $38,200 ($25,000 Maximum Limited Section 179 + $11,000 Bonus Depreciation + $2,200 Regular Depreciation) first-year tax deduction, whereas failing either truck status or GVWR threshold limits the first-year Regular Depreciation write off to $3,160 as opposed to the truck or GVWR first-year Regular Depreciation to $3,460.
Knowing the GVWR rule is important to planning your crossover vehicle tax deductions. But the GVWR rule does not come into play unless your crossover vehicle is a truck.
When the Crossover Vehicle Is a Truck
Beware. The term “truck chassis” does not determine truck or car. The IRS got this wrong in 2003, and that created confusion that existed until 2008.2
The Tax Reform Act of 1986 embeds the official truck or car classification in the gas-guzzler tax rules. In the legislative history of the luxury auto limits, you find the following: 3
The conference agreement includes all the provisions common to both bills. In addition, the conference agreement generally follows the House bill and the Senate amendment in utilizing "unloaded gross vehicle weight" for purposes of both the luxury vehicles and gas guzzler tax provisions. However, the conference agreement follows the Senate amendment by utilizing "gross vehicle weight" for purposes of the luxury vehicles provision, with respect to trucks and vans.
Thus, for purposes of both the luxury rules under Section 280F and the gas-guzzler tax, tax law grants the Secretary of Transportation the authority to define cars and trucks.4 The Department of Transportation says that your crossover vehicle is not a car but a light truck when it meets either A or B below:
A. Your crossover vehicle is a truck if you can create a flat, floor-level surface from the front seats to the rear by removing the seats using simple tools such as screwdrivers and wrenches.5
B. Your crossover vehicle is a truck if it first has either (a) four-wheel drive or (b) a GVWR of more than 6,000 pounds, and second has four or more of the following five characteristics:6
Approach angle of not less than 28 degrees
Break-over angle of not less than 14 degrees
Departure angle of not less than 20 degrees
Running clearance of not less than 20 centimeters
Front and rear axle clearances of not less than 18 centimeters
Paving the Way to Your Tax Deductions
You likely know this tax rule: “The burden of proof is on you.”
To qualify for the big tax deduction on your crossover vehicle, you need to prove that
the vehicle has a GVWR over 6,000 pounds and
that the vehicle is a truck for gas-guzzler purposes.
Finding the GVWR is easy. Usually the manufacturer’s specifications at its website will list the GVWR. If not, you can simply open the driver’s door and take a look.
Identifying the vehicle as a truck is more difficult. If the manufacturer says the crossover is a truck, it’s likely a truck, as the Department of Transportation has rules about labeling a vehicle a truck. You might find this truck label for your crossover at the manufacturer’s website and you might not, often not.
Plan B for identifying the crossover as a truck is to see if you can make a flat, floor-level surface from the front seats to the rear with no more than a screwdriver and a wrench. If you can create the flat floor, you can qualify for the big truck write-off.
Plan C applies to crossovers that have a combined fuel economy rating of less than 22.5 miles per gallon.7 Does your crossover fail this rating? If yes, does the gas-guzzler tax apply? You likely can find your new 2014 vehicle and check for the gas-guzzler tax in the following document:
If your crossover fails the 22.5 miles per gallon test and the gas-guzzler tax does not apply, your crossover is a truck.
If plans A, B, or C do not make your crossover a truck, you are stuck with meeting four of the five specifications that we discussed above. The good news is that manufacturers generally list at their websites the specifications that you need for comparison.
If your crossover vehicle has a high-enough GVWR and achieves truck status, you may use Section 179 expensing of up to $25,000 and 50-percent Bonus Depreciation to deduct the vehicle.
In the example above, the qualifying crossover truck triggered a possible $38,200 first-year deduction compared to the $11,160 first-year write-off for the crossover car.
NOTE FROM THE PUBLISHER
W. Murray Bradford, CPA
1 IRC Section 280F(d)(5). Note this wording: The passenger automobile is rated at 6,000 pounds unloaded gross vehicle weight or less, but for a truck or van, substitute “gross vehicle weight” for “unloaded gross vehicle weight.” Thus, use curb weight for cars and GVWR for trucks.
2 Note the “truck chassis” reference in Rev. Proc. 2007-30 and the no “truck chassis” reference in Rev. Proc. 2008-22. For details on the history of how the IRS incorrectly treated the term “truck chassis,” see our article titled “Does the SUV Built on a Unibody Frame Qualify for $25,000 Expensing?”
3 House of Representatives Report 99-841; 99th Congress; 2nd Session; H.R. 3838.
4 IRC Sections 4064(b)(1)(B); 280F.
5 49 CFR 523.5(a)(5).
6 49 CRF 523.5(b)(2).