Sometimes you just have to step back a bit, look at some of the more complex areas of tax law, and wonder how we got here. It certainly didn’t happen overnight. It seems whenever a new regulation is passed, something gets overlooked and ten more rules have to be created just to make certain the first rule is clear or a loophole is closed. Exceptions in the tax code have become a way of life.

Let’s take a moment to look at the luxury car rules as a good example. Before 1984, there was no such thing as “listed property.” It seemed like a good idea at the time, however, to stop taxpayers from claiming business deductions for property that may not be used 100% for business purposes. The IRS wanted taxpayers to maintain usage logs, separating personal use from business use.

When you consider property that lends itself to personal use, automobiles have to be one of the more obvious examples. (You might have said “cell phones” but those were removed from the definition of listed property in 2010.) Congress wanted to stop taxpayers from buying expensive luxury vehicles and claiming a business expense on them (does the local pharmacy really need a Porsche to deliver prescriptions?). And so it started, with restrictions being placed on how much depreciation one might claim on what became known as a “luxury car.”

Basically, a luxury car is defined as any four-wheeled vehicle intended by the manufacturer to be used primarily on public streets and weighing 6,000 pounds or less. There are limits on the annual amounts of depreciation claimed on such vehicles based on the year in which they are placed in service (including limitations on leased vehicles and the amount of allowable leasing expense). However, taxpayers can be quite creative and it soon became obvious there were several loopholes to avoid having a vehicle classified under this new category and new restrictions needed to be enacted into law.

Consider the fact that there are weight limitations when including a car or truck as a luxury vehicle. Taxpayers simply started purchasing heavier SUV’s, which not only allowed the taxpayer to claim larger depreciation amounts (since they were no longer classified as luxury vehicles), but even to expense most of their cost under the Section 179 rules. No one saw that one coming when the law was first introduced. It was assumed by having weight restrictions in the definition of a luxury vehicle, work vehicles could easily be excluded. After all, no one wanted to include dump trucks as luxury vehicles and this seemed the simplest way to avoid that from happening.

So now there are limits on the amount of Section 179 expense allowed to be claimed on sport utility vehicles (SUVs) weighing over 6,000 pounds (the limit is $25,000) per IRS Code Section 179(b)(5).

There is also now a definition of nonpersonal-use vehicles in IRS Code Section 274(i). These are vehicles that are, by reason of their nature, not likely to be used more than a de minimis amount of time for personal purposes.

The depreciation limits for luxury vehicles placed service in 2014 are:

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