If the business/investment use of the automobile is less than 100%, the maximum deduction amount must be reduced proportionately. For example, if a taxpayer purchased a car for $4,500 in 2001 and used it 60% for business, the cost of the car that qualified for the section 179 deduction was $2,700 ($4,500 X 60%). However, the section 179 deduction was limited to $1,836 ($3,060 ? 60%).

The percentage of business use is determined by tracking the miles driven over the course of the year. The Vehicle Mileage & Maintenance Record Book (here comes the shameless plug) which can be purchased at www.MileageBooks.com, is an excellent tool for tracking mileage.

Limitations

Beginning in 2003, the maximum allowable deduction under Section 179 will be $25,000.00 and will remain at that level in subsequent years until and unless the rule is updated. The amount has been increased by $500.00 each year since 2001. The deduction can’t exceed income reported in the tax year. A vehicle deduction can be included toward the maximum amount.

Electing the section 179 deduction is not always advantageous. The election may reduce or eliminate eligibility to claim the earned income credit, reduce coverage under the social security system, and prevent fully using all available exemptions and deductions.

There are many other factors affecting the election of Section 179 deductions, and not all of them can be considered without an examination of a tax payer’s individual tax circumstances. There are limits on income levels, corporate structure and asset characteristics. Other qualifying factors include the location of a business (HUB Zones and the New York Liberty Zone impact qualification).

As always, MileageBooks.com recommends that you consult with a tax professional, accountant or attorney when planning tax strategies. Other useful information pertaining to the business use of vehicles is available on our web site. A valuable “Car Buyers Guide� that can help you save thousands of dollars on the purchase of a new or used vehicle is also available for download at the site.

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