Problem 8-47 (LO. 2, 3, 4) On March 15, 2017, Helen purchased and placed in serv
ID: 2565971 • Letter: P
Question
Problem 8-47 (LO. 2, 3, 4) On March 15, 2017, Helen purchased and placed in service a new Escalade. The purchase price was $62,000, and the vehicle had a rating of 6,500 GVW. The vehicle was used 100% for business. Helen does claim any available additional first-year depreciation. If required, round your answers to the nearest dollar. Click here to access the depreciation table to use for this problem. Click here to access the limits for certain automobiles. Calculate the maximum total depreciation deduction that Helen may take with respect to the vehicle for 2017. Section § 179 expense $ Additional first-year depreciation MACRS cost recovery Total deduction $
Explanation / Answer
If a taxpayer purchases a new large pickup truck that has a bed over 6 feet in interior length for $60,000 in 2017 and uses it 100% for business, the business can claim a deduction for Sec. 179 depreciation and/or bonus depreciation of the full $60,000 in the year the vehicle was placed in service.
These rules are in place because most business vehicles are large trucks or vans, and the ability to purchase a vehicle and depreciate the entire cost in the first year to reduce the company's or individual's tax bill encourages business spending. Various websites and tax research products list vehicles over 6,000 pounds gross vehicle weight.
Although taxpayers should not base their business decisions solely on the tax consequences, accelerated depreciation on vehicles over the past few years has provided an incentive to make purchases. While the extension of the rules for bonus depreciation and the increased Sec. 179 expense deduction amounts are useful, it would be helpful if these rules were also made permanent for 2015 and future years, giving certainty to taxpayers and practitioners and helping the U.S. economy to continue to recover by encouraging capital investment.
Reflections
Although there has been no recent discussion about this, Congress should consider making an upward revision to the Sec. 280F limit amounts or changing the rules regarding which vehicles are subject to the limits. Because there is a very real incentive for business owners to abuse the cost recovery rules by purchasing vehicles that are either larger or more luxurious than warranted by business needs, having limits is appropriate. However, the current low levels at which the limits are set and their applicability to almost all vehicles under 6,000 pounds make the limits overbroad, causing them to apply to many vehicles that are purchased for legitimate business reasons.