I just became partner in a practice and am also looking to purchase a new vehicle. Many of my MD friends have purchased SUV's because of tax reasons. Can you please explain how this is deductible. Not the milage, but the actual cost of the luxury SUV.

Zip Code: snarayanan@pol.net

Since you're talking about an SUV, I'm going to assume you're talking about one that weighs more than 6,000 lbs, often referred to as the "Hummer Deduction."

There are two probable scenerios:

-1- If the practice purchases the vehicle, the practice may be able to immediately write off up to the first $100,000 of the cost of the SUV under IRC Sec 179. However, even if they can do this, as an employee you would have to report your business and personal mileage to the practice, and they would then have to compute the value of your personal use, including it in your income. (This could be complicated if you are a 5% or greater owner of the practice - my recollection is that the practice's first year write off will be limited if your business mileage isn't over 50% of your total mileage.)

-2- If you purchase the SUV personally, you would be allowed to write off your BUSINESS portion of the vehicle on Schedule A as a Miscellaneous Itemized Deduction. Note however that Misc Itemized Deductions are subject to a limitation (only the amount that exceeds 2% of your Adjusted Gross Income is allowed as a deduction), and Itemized Deductions can be limited depending on your income. In addition, if you don't use the vehicle more than 50% for business, you won't be able to get the large first year IRC Sec 179 deduction mentioned above. This assumes you can itemize.

Vehicle expenses and deductions are often misunderstood, and are also one of the IRS' favorite things to audit. Understanding your situation, and keeping good records will insure you get the best deduction possible.

Good luck and set up a meeting with a good CPA to review the details of your situation.

Gary

Zip Code: garyd@davisandbrandel.com

We wrote about this in our August, 2003 newsletter available at: http://www.mdtaxes.com/news0803.html

Zip Code: cpa@mdtaxes.com