New IRS regulations allow for retroactive deductibles for business vehicles

Delivery vans are not exactly my idea of luxury vehicles. However, they have long been considered as such under the luxury automobile limits for federal tax depreciation and Section 179 expenses, because they typically cost more than $15,000.
Such vans and pickup trucks are useful in many businesses, but they’re not luxurious. Now, due to recently finalized Internal Revenue Service regulations, luxury auto limitations do not apply to qualified non-personal use vehicles (QNUVs), which should provide much greater depreciation deductions for businesses that own these types of vehicles.
A QNUV is any truck or van that, by reason of its design and modifications, is not likely to be used more than a de minimis amount for personal purposes. QNUVs with a gross vehicle weight rating of greater than 6,000 pounds already are exempt from luxury auto limits; the new IRS regulations only affect those vehicles with a gross vehicle weight rating of less than 6,000 pounds.
In determining how a van or pickup truck qualifies as a QNUV, one of the modifications that needs to be made is the use of permanently affixed decals or painting of advertising associated with the employer’s trade, business or function.
In addition to the change to the outside, vans should only have front seats, permanent shelving that fills most of the cargo area and must be constantly used to carry merchandise or equipment.
Pickup trucks have different requirements than vans. Pickup trucks need to be significantly modified to transport a load or equipped with items such as a permanently installed tank, a hydraulic lift gate or other heavy equipment to qualify as a QNUV.
To see the benefit of a vehicle qualifying as a QNUV, you only have to look at the amounts eligible to be expensed in the first year of purchase.
For example, a catering company purchased four vans that were equipped as described above in July of 2003 at a cost of $25,000 each. Under the old rules, only $44,000 of the $100,000 cost can be expensed in the first year. With the new law, these vans would qualify as a QNUV, and luxury auto limits would not apply. The vans would be eligible for first year expensing of up to $100,000.
If your company has vans or pickup trucks that meet the requirements for qualified non-personal use vehicles, and the luxury auto depreciation limits have been applied and therefore have limited the amount of depreciation or first-year expensing taken on such vehicles, you have some options.
If a QNUV was placed into service in the current year and the tax return has not yet been filed, do not apply the luxury auto limits to the QNUV. If the vehicle was placed in service in prior years, taxpayers can retroactively take depreciation and first-year expensing that was limited by either filing an amended return, or filing Form 3115 for a change in accounting method with the IRS. In doing so, a company can pick up the additional depreciation in the current year.
Amending the returns will prevent you from having to wait until the end of the current year to receive the benefits of the additional depreciation expense, but multiple amended returns might need to be filed if multiple years are involved.
For example, if a QNUV was put into service in 2001, an amended return for 2001, 2002 and 2003 will have to be filed. Amending the returns for QNUVs placed into service before July 7, 2003 also will need to be done by the end of this year. Filing Form 3115 will be the simplest way to make the change if multiple years are involved.
The Form 3115 is attached with the taxpayer’s return for the year of change (likely the 2004 return unless the 2003 return has not yet been filed), and the net adjustment of the now allowable, but unclaimed, depreciation and first-year expensing is included on the current year’s return.
Stephen A. Bjork is a certified public accountant at Komisar Brady & Co. LLP, Milwaukee.
October 1, 2004, Small Business Times, Milwaukee, WI