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There was an old 1980s David Letterman skit where a child genius was asked questions by Letterman and once the genius replied a funny response was given.

If I remember right after a series of tough (but easy for the kid) questions, David fired off "What is the maximum speed I can do on the Merritt Parkway at night?" The kid replied something like 55 and got "Wrong! I can do 125 easy and not get pulled over!"
 

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So, the 6000 lb GVWR of the Ascent is not due to a physical/structural limitation but rather a bureaucratic one? ...if you exceed 6000 lb you'll be breaking the law, not breaking the Ascent?
 

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Let's separate the issues here:

GVWR is Gross Vehicle Weight Rating - it is the manufacturer's rating for how much this vehicle can hold including all passengers, full tank of gas, trunk if full, roof is holding up it's max weight - in other words what is the max safe weight of this vehicle.

Section 179 is advanced expense of depreciation (depreciation is normally a deduction) which lets business owner's expense typically 100% of real property in year 1 rather than over a depreciation schedule of the asset's useful life (cars are 5 years).

The US Government produces tax law from congress which is interpreted by the IRS to set tax preparation rules. I've posted before that SUVs are in a bit of a grey area because the IRS set guidance for cars and trucks, and only lately is filling in the SUV rules. They are for Section 179, that the vehicle has to have > 6000 GVWR and for SUVs be relegate passenger or cargo for hire (think Uber/Lyft, etc). There are some esoteric rules that really don't count for SUVs such as seats 9 passengers or more, separates passenger area from driving area, and others that are more for the van market than SUVs.

Additionally muddying this is the non-IRS side of the government that handles vehicles and transportation which states that vehicles > 6000 GVWR are class IIa (IIb being big trucks) and cannot drive on highways. That said, yes you can likely drive a Chevy Tahoe on a highway and never be ticketed but come end of month and hungry police, you might.

So now in short, the 6,000 lb GVWR for the Ascent is a safety limit, not necessarily bureaucratic, but IMHO Subaru could have easily made it 6,001 lbs and you'd see more Ascent sales (to businesses).
 

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So, the 6000 lb GVWR of the Ascent is not due to a physical/structural limitation but rather a bureaucratic one? ...if you exceed 6000 lb you'll be breaking the law, not breaking the Ascent?
Kinda both...
 

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Nah...I'm not buying it. 6000 lb is too tidy a round (imperial) number. Except for trailer GVW and trailer tongue load, no other limitations are. Cargo, 1158 lb. Front axle, 3021. Rear axle, 3296. Rim rating... tire rating...etc. Of course it's there on the placard, so we're stuck with it, regardless of its origin or intent.
 

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Discussion Starter #46
So now in short, the 6,000 lb GVWR for the Ascent is a safety limit, not necessarily bureaucratic, but IMHO Subaru could have easily made it 6,001 lbs and you'd see more Ascent sales (to businesses).
It's a very real state limit in multiple states. NY is just one example of places where I've been on parkways with vehicle limitations. Heck, NY State alone is a massive market that'd be affected. Just the NY City parkways carry a million cars a day - and none over 6,000 pounds without special class certifications.
 

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Robert,

Thanks on the enforcement side. Yes, it's up to each state, so YMMV if you're in California, Arizona, Vermont, New York etc, and check posted signs for state routes and Federal highways.

As for the tax side of things Sec 179(a) disallows expense of any amount of business vehicles placed in service in 2020 that are GVWR 6000 lbs or less.

While it's a shame Subaru didn't peg GVWR to 6001 lbs, Sec 179 is a nonrefundable expense. You cannot take a loss with Sec 179. E.g. if your business income is $40k, you can get a max of $40k of Sec 179 and defer the residual.

Also, if your business use dips to 50% or lower, you are subject to Sec 179 depreciation recapture!

But what they can do for their Ascent and similar <= 6000 lb business vehicles:

For passenger automobiles to which the Sec. 168(k) additional (bonus) first-year depreciation deduction applies and that are acquired after Sept. 27, 2017, and placed in service during calendar year 2020, the depreciation limit under Sec. 280F(d)(7) is $18,100 for the first tax year; $16,100 for the second tax year; $9,700 for the third tax year; and $5,760 for each succeeding year, all unchanged from 2019.

Thus for any vehicle new or used business vehicle bought by a business as "new to them" e.g., Ascent Touring '20 or '21 bought in 2020 and placed in service in 2020 (or any used vehicle placed in service in 2020):
2020 depreciation limit: $18,100
2021 depreciation limit: $16,100
2022 depreciation limit: $9,700 (you're at 43.9k now)
2023 depreciation limit: $5,760 (you're at 49.6k now)
2024 depreciation limit: $5,760 (in case you exceeded $50k purchase)

Each year you take depreciation without respect to net income, because unlike Sec 179 expense, Depreciation deduction can allow an NOL (net operating loss).

In terms of disposition of the vehicle (sales, liquidating to a partner, etc), there are tax consequences (e.g., recapture of Sec 1245 depreciation, partner's outside basis, etc) that I can chat about privately if one so desires.
 

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To be sure and elaborate more fully on the tax consequences of selling your Ascent...

Given -- as discussed -- the Ascent is not > 6,000lbs GVWR there is and was no Section 179 depreciation expense to take.

For the depreciation schedule a business would use, it is indeed 5-years and you are not required to elect bonus depreciation if you don't choose to do so, but you would be under old school MACRS straight-line depreciation if not.

Whichever depreciation your business takes, it keeps on the balance sheet as accumulated depreciation.

Redoing the 2020 chart from above:
1. 2020: You took $18,100 depreciation in Tax year 2020: Accumulated depreciation is $18,100
2. 2021: You took $16,100 depreciation in Tax year 2021: Accumulated depreciation is $34,200
3. 2022: You took $9,700 depreciation in Tax year 2022: Accumulated depreciation is $43,900

Now let's say you want to sell the Ascent either back to the dealer to grab something else from them (e.g., trade in) or straight sale. Assume you're doing this on 12/31/2022 for simplicity sake.

Your cost for the vehicle is your basis
e.g., You got a 2021 Subaru Ascent Touring for OTD: $45,500

Your sale price is whatever you sell the vehicle at in the future:
e.g., You get agreement for $21,500

This looks like a loss on paper as $21,500 less $45,500 is not favorable but that's not how taxes work:

Your adjusted basis (AB) is your basis less any depreciation taken (or what could have been taken straight-line if you didn't):
$45,500 less $43,900 depreciation taken = $1,600 is now your AB.

Now your realized gain is FMV of sale less AB = $21,500 less $1,600 = $19,900 and to the extent of depreciation taken ($43,900) it's reclassified from capital gains to ordinary income.

Now had you elected to not use bonus depreciation you would be under straight line and annually you'd deduct $45,500 / 5 as depreciation. 3 years of that would be $45,500 * 3/5 = $27,300

Same scenario with straight line is now FMV less AB = $21,500 less ($45,500 - $27,300) = $3,300 profit all reclassed as ordinary income under Sec 1245.

The tradeoff is simple: Do you want to take more of a loss from depreciation for 3 years then pay more in taxes as the sale is taxed at your marginal tax rate?

Or do you want a lesser depreciation deduction each year and a very small tax to pay under straight line?

Message me if you want to know about how to avoid any of the recapture.
 
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