Back in 1984, Congress, under the provisions of Code Sec. 280F, imposed limits on the annual amount of
depreciation that can be claimed for "luxury cars." Although Code Sec. 280F uses the term "luxury
automobiles" in its title, nowhere does it define a luxury car in terms of the cost of the car.
Instead, the Code and its supporting IRS regulations specifically exclude certain vehicles from the
classification of luxury cars no matter what their cost. If a vehicle is not excluded, the determination of
whether it fits within the definition of a luxury car depends upon its weight, and not upon its cost.
Thus, in applying the luxury car rules, we often face the apparent contradiction of having one's moderately
priced vehicle subject to the yearly depreciation caps because it is a "luxury car," while another person's
vehicle, which costs considerably more, will be exempt from the depreciation caps because the vehicle's
weight removes it from the category of a luxury car. Just because your vehicle does not appear on the list
of excluded vehicles appearing in the IRS list, this does not mean that the vehicle is automatically
classified as being in the "luxury" category. A weight standard must be applied in order to determine its
correct classification. Cars are subject to a different weight standard than trucks and vans.
Cars. A car is classified as a luxury car if it is a four-wheeled vehicle, primarily manufactured for
use on public streets, roads and highways, and rated at 6,000 pounds unloaded gross vehicle weight or less.
The IRS excise tax regulations define "gross vehicle weight" as the value specified by the manufacturer as
the maximum design loaded weight of the vehicle. A vehicle's gross vehicle weight may generally be obtained
from the certification label or manufacturer's plate that is attached to the vehicle (sometimes on the
driver's side door post).
Trucks and vans. The same general definition of a luxury vehicle is applied to trucks and vans,
except that when the weight standard is applied, "gross vehicle weight" is used instead of "unloaded gross
vehicle weight." The IRS excise tax regulations stated that "gross vehicle weight" is the maximum total
weight of a loaded vehicle. For example, if a truck can hold 6 passengers and 1,000 pounds or cargo and its
gross vehicle weight was rated by its manufacture at 6,500 pounds, the truck is not a luxury vehicle.
Sports Utility Vehicles. The IRS has commented that the term "truck or van" includes vehicles that
are commonly know as a "sports utility vehicle" (SUV). Examples of full-size sport utility vehicles include
the Chevy Tahoe, GMC Yukon, Ford Bronco and Toyota Land Cruiser. It appears that if an SUV has a gross
vehicle weight (i.e., a fully loaded weight) in excess of 6,000 pounds, it would be exempt from the annual
depreciation limits imposed on luxury cars.
Example. For example, if a car that cost $35,000 was placed in service in 1997 and used 100% for
business, the maximum depreciation for that year under the luxury car caps would be $3,160. However, if the
vehicle was an SUV and was not classified as a luxury vehicle because of its weight, the maximum
depreciation for 1997 would be $7,000 ($35,000 x 20%).
Needless to say, it pays to determine the gross vehicle weight of your vehicle and to determine if it is
classified as a car, truck or van before automatically assuming the luxury vehicle depreciation limits
apply.
