• You might own a "luxury auto" whether you know it or not--for tax purposes, anyway.Luxury Car sportscar from my luxury car series image by alma_sacra from Fotolia.com
  
  When you hear the term "luxury car," you might think of upscale brands, chauffeurs and six-figure prices. The Internal Revenue Service (IRS) has a different definition of luxury, one which may or may not correspond to your own. Owners of vehicles which fit this definition as per IRS rules are entitled to deduct a certain amount from their yearly taxable income to account for the vehicle's inherent loss of value over time.
  
  

Definitions

• The IRS' definition of "luxury auto" might be slightly different than your own. Or, as Fletcher Law Firm characterizes it, a "misnomer." Specifically, the IRS defines any "passenger automobile used for business" as a luxury vehicle for tax purposes, so long as it's used for business more than 50 percent of the time.
  
  If you're a luxury car owner per this definition, you may deduct a certain dollar amount from your taxable income to compensate for inflation-related depreciation on your vehicle--in addition to being able to deduct the purchase price of the vehicle itself for the first year. According to the IRS, deduction amounts for trucks and vans are slightly higher than those for passenger cars, which "reflects the higher rate of price inflation that trucks and vans have been subject to since 1988."
  
  Keep in mind if you use the IRS' "standard business mileage" rate on your return and deduct 55 cents for every mile your vehicle drove for work purposes, you can't take a separate depreciation deduction--this is already included in the mileage rate.
  
  

Limitations

• Technically speaking, the deduction is a "limitation" rather than an allowance--the IRS has determined there is a limit on the amount a vehicle may depreciate during a single tax year. The IRS sets different limitations depending on which category your vehicle falls into. Broadly speaking, there are two categories: "passenger automobiles" and "trucks and vans." Each of these categories is further subdivided, depending on whether or not your vehicle was new when you put it into service: new vehicles are entitled to a 50 percent higher deduction.
  
  As of tax year 2009, you're entitled to an additional $8,000 deduction during the year you purchase your vehicle.
  
  

The Future

• You may deduct vehicle depreciation for as many years as you have the vehicle in service. According to IRS tables, the amount you can deduct for depreciation rises slightly in the second year and then goes down after that. This characterization excludes new cars purchased within the tax year, where the aforementioned first-year "bonus" deductions dwarf any amounts listed for subsequent years.
  
  According to the Business Owner's Toolkit, however, the new vehicle bonus might not be around forever. "Without further legislative action," the resource notes, "for 2010, the additional $8,000 will no longer be allowed."