by Shelly Doerhoff, CPA

You’re probably already aware that the IRS places annual limitations on the dollar amount of depreciation allowable on automobiles purchased and placed in service during the tax year. As inflation increases, the amount of this deduction must increase as well. For 2011, the first-year depreciation deduction limits are increased by  8,000—from $3,060 to $11,060 (passenger automobiles) and from $3,260 to $11,260 (trucks and vans)—for  qualified property placed in service during 2011. The revised limitations do not apply in cases where the automobile purchased was a used vehicle, the taxpayer’s business use of the vehicle is not greater than 50% for 2011, or if the taxpayer chooses to opt out of the additional depreciation deduction.

These figures take into account two notable amendments found in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010: the two-year extension of the 50% additional first-year depreciation deduction for qualifying property purchased and placed in service between December 31, 2007 and January 1, 2013 (extended from a cutoff of January 1, 2011) which was first presented in the Small Business Jobs Act of 2010; and the 100% additional first-year depreciation deduction allowable on qualifying property purchased and placed in service between September 8, 2010 and January 1, 2012. If your business is ready to purchase a new vehicle, the time to act is now, before these depreciation incentives run out.

More information on this tax topic can be found in Revenue Procedure 2011-21 which was released in February 2011 by the IRS, or Contact Us for an appointment to discuss your business tax planning needs.