Defining Depreciation Limits on Qualified Non-Personal-Use Trucks and Vans

In June 24, 2004, Treasury issued TD 9133, final regulations liberalizing the depreciation rules affecting taxpayers who use vans and light trucks in their trade or business. With exception, vans and light trucks fall under the luxury car depreciation limits if their gross vehicle weight is 6,000 pounds or less. The luxury car rules limit annual depreciation to a certain amount, adjusted annually for inflation, as dictated by Sec. 280F.

For the benefit of businesses, Regs. Sec. 1.280F-6(c)(3)(iii) defines qualified non-personal-use vehicles as any truck or van that is a qualified nonpersonal use vehicle as defined under 1.274-5T(k). For the most part, Temp. Regs. Sec. 1.274-5T(k)(2)(ii) offers a very specific list of qualified non-personal-use vehicles. However, Temp. Regs. Sec. 1.274-5T(k)(2)(ii)(S) allows the IRS to designate others.

Temp. Regs. Sec. 1.274-5T(k)(7) states that a qualified non-personal-use van and small truck is one specially modified with the result that it is not likely to be used more than a de minimis amount for personal purposes.

Although the temporary regulation gives only one example, other modified vans and trucks should qualify as non-personal-use vehicles. Temp. Regs. Sec. 1.274-5T(k)(7)s example allows a van that has been modified as follows:

Has only a front bench for seating;

Has had installed permanent shelving that fills most of the cargo area;

Constantly carries merchandise or equipment; and

Has been specially painted with advertising or a companys name.

With one exception, under Regs. Sec. 1.280F-6(f)(1), the new regulation applies to property placed in service by a taxpayer after July 6, 2003. However, Regs. Sec. 1.280F-6(f)(2) allows taxpayers with qualified non-personal-use vehicles placed in service before July 7, 2003, to avail themselves of the liberalized rules in one of three ways.

Regs. Sec. 1.280F-6(f)(2)(ii) allows pre-July 7, 2003 use if the taxpayer adopts that treatment in determining the depreciation deduction on an original return for the year in which the vehicle is placed in service. For example, this exception applies to a taxpayer with a year that straddled July 7, 2003, if the asset was placed in service before that date.

Regs. Sec. 1.280F-6(f)(2)(iii) allows a taxpayer to file an amended return for all applicable tax years, by Dec. 31, 2004. Regs. Sec. 1.280F-6(f)(2)(iii) defines the time period as follows:

The applicable taxable years for this purpose are the taxable year in which the vehicle was placed in service by the taxpayer (or, if the period of limitation for assessment under section 6501 has expired for such year or any subsequent year (a closed year), the first taxable year following the most recent closed year) and all subsequent taxable years in which the vehicle was treated on the taxpayers return as property to which section 280F(a) applies. If the earliest applicable taxable year is not the year in which the vehicle was placed in service, the adjusted depreciable basis of the property as of the beginning of the first applicable taxable year is recovered over the remaining recovery period. If the remaining recovery period as of the beginning of the first applicable taxable year is less than 12 months, the entire adjusted depreciable basis of the property as of the beginning of the first applicable taxable year is recovered in that year.

Regs. Sec. 1.280F-6(f)(2)(iv) allows for a change in accounting method by filing Form 3115, Application for Change in Accounting Method.

Conclusion

The liberalized rules allow for accelerated depreciation deductions for qualified nonpersonal vans and trucks prospectively and, if timely applied, for previously filed applicable tax years.

From Steven Blumenthal, RD Hunter & Company LLC, Fair Lawn, NJ