Defining depreciation limits on qualified non-personal-use trucks and vans.

• Author: Blumenthal, Steven

On 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 non-personal use vehicle as defined under [section] 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 company's 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 tax payers 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...