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Automobile Expenses
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Re: Vehicle purchase and deduction

For most business vehicles, you are generally better off selling the vehicle than trading it in. That's because the depreciation you can claim on most cars is limited, so by selling the car, you end up taking a loss on your business tax return. In other words, the value of the car decreases quicker than the depreciation you are allowed to claim.

If you trade in your vehicle, you will add the undepreciated portion of your car to the amount you paid for the new car, which will leave you with an over-inflated cost basis for your new car.

For an SUV with a gross vehicle weight in excess of 6,000 pounds, however, you are allowed to claim more depreciation up front. For that reason, you might not be in too bad of shape if you trade-in that SUV for a new one after holding the SUV for at least 5 years. You just need to compare the undepreciated basis in the SUV with its current fair value.

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