Automobile Audit Casestudy
A common area of confusion in the tax code is defining whether an auto is a car or an SUV. Said another way, there are two outcomes of a audit:
If the tax code makes the SUV a passenger vehicle, the curb weight of 5,700 pounds limits DJ’s tax deduction to $18,000.
If the tax code makes the SUV a truck using the gross weight of 6,100 pounds, DJ’s deduction is $55,000.
In this situation, taxpayer DJ is in an IRS audit of his 2018 tax return. It is now at the IRS appeals level. The vehicle in question is an SUV with a curb weight of 5,700 pounds and a gross vehicle weight of 6,100 pounds.
The IRS attorney who is handling the appeal tells DJ that he has to use curb weight because his SUV is built on a car chassis. However, the IRS attorney is wrong and DJ wins his $55,000 deduction. Here’s why.
To qualify for bonus depreciation (or Section 179 expensing), the SUV must escape the luxury vehicle depreciation limits on deductions by qualifying for the IRC 179 subsection requirements. This requires two criteria are met:
The SUV must have a gross vehicle weight rating (GVWR) of 6,001 pounds or more.
Also, the SUV must be a truck under the Department of Transportation (DOT) regulations. (Using guidelines set out in DOT regulations, manufacturers label SUVs as “trucks” or “cars.”)
In a world where SUVs are becoming more luxurious and comfortable, it’s more important now than ever to make sure your auto will qualify - keep in mind that all of our Tax Planning and Compliance program receive this guidance as part of their monthly fee, so do not buy an auto without a consult to confirm deductibility!
