Many small businesses can instantly deduct up to $108,000 worth of new and preowned equipment in the year it's first placed in service ($112,000 for tax years beginning in 2007, after adjusting for inflation). The name of this generous break is the Section 179 depreciation deduction, and it can reduce both your federal income tax and self-employment tax bills. (You may get a state-tax deduction too.) Without it, you'd have to depreciate most business equipment gradually over five to seven years.

New and preowned "heavy" SUVs, pickups, and vans used more than 50% for business purposes are eligible for the Section 179 write-off (as is, for that matter, most other small-business equipment, such as computers (plus software) and home-office furniture or software).

Reduced Writeoff for Heavy SUVs
Congress imposed a reduced $25,000 limit on Section 179 deductions for heavy SUVs. This restriction applies only to SUVs put to business use after October 22, 2004. Not to worry! The idea of buying a heavy SUV still works quite well. Why? Because the tax law allows you to claim the $25,000 Section 179 writeoff plus the "regular" first-year depreciation writeoff. For example, say you spend $60,000 in 2007 to buy a new Cadillac Escalade that is used 100% in your business. You can generally claim the following first-year deductions on your business's 2007 federal return: the $25,000 Section 179 writeoff plus $7,000 worth of regular depreciation [20% x ($60,000 - $25,000)]. So your first-year depreciation deductions add up to $32,000, or about 53% of the new Escalade's cost. This is a far better deal than if you spent the same $60,000 on a new BMW used 100% for business (in that case, your first-year depreciation writeoff would be limited to about $3,000 under the so-called luxury auto depreciation limitations).

Heavy Non-SUVs Still Generate Oversized Tax Savings
The full Section 179 deduction ($112,000 for tax years beginning in 2007; $108,000 for 2006) is still available for heavy business vehicles that are not considered to be SUVs under the tax law. Both new and used vehicles can qualify for this important exception. Non-SUVs include:

Bottom Line: Heavy vehicles that fall under these three exceptions remain eligible for the full Section 179 writeoff ($112,000 for tax years beginning in 2007; $108,000 for 2006). That means you can probably deduct the full business portion of your heavy non-SUV's cost in Year One. Sweet!

The catch? Only that your newly acquired vehicle must be used more than 50% of the time for business purposes. But as I'll explain below, setting up a business office in your home can give you a big leg up in meeting this requirement. Before we get to that key point, however, here's a little more background so you'll understand how the Section 179 break works in this context.

First, Pick Out a Suitably Heavy Machine
The Section 179 deduction is available only when your SUV, pickup or van has a manufacturer's gross vehicle weight rating (GVWR) above 6,000 pounds. (First-year depreciation deductions for lighter vehicles are subject to much skimpier limits.) Fortunately, it's very easy to find attractive vehicles with GVWRs above the magic 6,000-pound figure. Most machines that look big enough to qualify do qualify. Examples include the Hummer H2, the Chevy Suburban and Dodge Ram pickups. You can verify a vehicle's GVWR by checking the label on the inside edge of the driver's door.

Then, Buy It (Don't Lease It)
Here's another very important point: Leasing a heavy SUV, pickup or van will disqualify you from claiming the generous first-year Section 179 deduction. Instead, you'd only be able to deduct your lease payments as you make them. For this reason, you should generally buy rather than lease heavy SUVs, pickups and vans that will be used over 50% for business. The fact that you may finance some or all of the vehicle's purchase price won't affect your Section 179 deduction in the least.

Next, Play the Home-Office Angle
As mentioned above, the lucrative Section 179 write-off is available only when you use your heavy SUV, pickup or van over 50% for business. Your business-use percentage is based on your business and personal mileage.

Unfortunately, this over-50% business-use test can be difficult to pass. You're much more likely to clear the hurdle if you can also claim a principal place of your business is an office located in your home. Why? Because then all the commuting mileage from your home office to various temporary work locations (client sites, etc.) will be considered business mileage. Ditto for commuting mileage between your home office and any other regular place of business — such as another office you keep in the city. (Frustratingly, if you only have an office outside your home, your drives between home and office won't count as business mileage.) You can also treat all the mileage between your other regular place of business (that office in the city) and your various temporary work locations (client sites, etc.) as additional business mileage. Source: IRS Revenue Ruling 99-7.

More business mileage also means a bigger first-year Section 179 deduction. For example, a $60,000 heavy non-SUV used 100% business means a $60,000 first-year write-off (100% x $60,000 = $60,000). In contrast, 70% business use cuts your deduction down to $42,000 (70% x $60,000 = $42,000).

Last but not least, your home-office deduction counts as a business write-off as well. As such, it reduces your federal income-tax and self-employment-tax bills. And as if that's not enough, you'll probably also get a state-income-tax write-off.

All that — plus the option of showing up for work in your pajamas. You just can't beat it.

Making Your Home Office a Principal Place of Business
So how do you make your home office a principal place of business if you haven't done so already? The tax law gives the self-employed types (sole proprietor, partner or LLC member) two ways to qualify:

1st Way: You conduct most of your income-earning activities in the home office.

2nd Way: You conduct your administrative and management functions in the home office. However, to take advantage of this taxpayer-friendly qualification rule, you can't make substantial use of any other fixed location (like that other office downtown) for your administrative and management chores.

For either qualification rule you must use your home-office space regularly and exclusively for business purposes during the year in question. Regularly means often and continuously, as opposed to occasionally. Exclusively means no personal use at any time during the year. (Granted, if you occasionally use the TV in your home office to catch the scores of your favorite sports team, the IRS is obviously never going to be the wiser — but you do need to take these rules seriously.)

So if you don't already have a home office dedicated to your small business, you may have to wait until next year to set one up and buy your heavy SUV, pickup or van. No problem. That gives you plenty of time to shop around for just the right vehicle.

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