Best Tax Tips

As part of the Economic Stimulus Act of 2008, Congress enacted a temporary increase in the allowable depreciation deduction for passenger vehicles under the luxury car rules. Under this law, taxpayers will be able to deduct just over $11,000 as first-year depreciation on business use vehicles purchased and placed in service in 2008. This increase in the luxury car limitation may be relevant if you plan to purchase or lease a new vehicle for use in your business this year.

As an alternative to purchasing a vehicle, you may wish to consider leasing. Generally, lease payments for vehicles used for business purposes are deductible in proportion to the vehicle’s business use. However, the lessee must include a certain amount in income during the years the vehicle is leased to partially offset the excess of lease payments over the “luxury auto limits.” The increase in the deduction limitation for luxury cars, however, may impact your decision whether to lease or purchase a vehicle.