Tax Breaks Given on Gas-Guzzling SUVs

[Variance]

Tax Breaks Given on Gas-Guzzling SUVs

By TIM MOLLOY, Associated Press Writer

Sat Feb 18, 2:16 PM ET

New tax breaks are available to anyone who wants to help the environment by purchasing fuel-efficient hybrid vehicles. But if owners of small businesses really want to save money, they can get even bigger federal tax breaks by buying the largest gas-guzzling SUVs.

The disparity is drawing criticism from environmentalists and the Republican chairman of the Senate's tax-writing committee, who is working on a change. Dealers and owners who have benefited from the SUV tax incentive say it helps spur a key part of the economy — auto-making — and allows small business owners to purchase vehicles that improve their bottom line.

Federal tax rules that took effect last month allow a credit of up to $3,150 for anyone buying a hybrid car. The credit is the same regardless of tax bracket.

However, owners of small businesses who buy a Hummer, Ford Excursion or other SUV weighing more than 3 tons get a deduction of up to $25,000 — depending on tax bracket — if they use the vehicle exclusively for work.

The benefits don't stop there. Once they subtract the $25,000 from the cost of their 3-ton SUV, small business owners can deduct the depreciation on the remaining amount. Someone who bought a $60,000 SUV, for example, can claim the remaining $35,000 over six years.

No such luck for small business owners who buy cars weighing less than 3 tons. No matter how much the vehicles cost, they can claim just $15,535 in depreciation over six years and $1,675 each additional year. Deductions for depreciation on trucks and vans weighing less than 3 tons are slightly more generous.

Senate Finance Committee Chairman Chuck Grassley, R-Iowa, is working on a bill that would level the playing field between SUVs and hybrids.

"It's inconsistent for the tax code to encourage business people to buy heavy SUVs and not alternative vehicles," said Grassley, whose committee has oversight of tax legislation. "As consumer demand for alternative energy products increases, it's important for the tax code to be consistent."

A Grassley aide declined to describe the legislation in detail, saying more information will be released in coming weeks.

Dan Becker, head of the Sierra Club's global warming program, said the SUV tax break flies in the face of President Bush's State of the Union call for less reliance on oil.

"The president is right that we're addicted to oil, so we should break the addiction by urging Americans to buy hybrids, not Hummers," Becker said.

The Alliance of Automobile Manufacturers declined to comment beyond saying the group is satisfied with current tax policy.

Nashville real estate agent Cindy Jasper said the deduction has boosted her small business. She uses two Hummer H2s to take clients to rugged farm and equestrian properties — and the vehicles also help grab customers' attention.

"It's just such a great marketing vehicle," she said. "You have to do something to be a little bit different."

The tax breaks for large SUVs are rooted in long-standing deductions for small business purchases, including trucks and vans for farmers, contractors and others who need heavy vehicles.

Trying to jump-start the economy after the terrorist attacks of Sept. 11, 2001, Congress increased the deduction for small businesses from $25,000 to $100,000 for 2003 and most of 2004. However, lawyers, doctors and others also took advantage of the measure.

Treasury Secretary John Snow wrote in a 2004 letter that the Bush administration favored the deduction's "complete elimination" except when there was a legitimate business need for a large SUV. That same year, Congress reduced the deduction to $25,000.

The IRS does not keep statistics on the number of people who took the SUV deduction, spokeswoman Nora Butler said.

Link: http://news.yahoo.com/s/ap/20060218/ap_on_...HE0BHNlYwN0bWE-

[Snate]

This stupid thing is back?

It was incredibly dumb to begin with and its even more dumb now.

[Robert Hall]

This stupid thing is back?

It was incredibly dumb to begin with and its even more dumb now.

I have a few consultant friends that did it... I semi-seriously thought about doing it myself a few years ago (buying a Suburban as a commuter car when I had my own 1-person consulting firm).

[Snate]

I have a few consultant friends that did it...  I semi-seriously thought about doing it myself a few years ago (buying a Suburban as a commuter car when I had my own 1-person consulting firm).

We are trying to cut down oil consumption. This makes absolutely no sense as it does the exact opposite.

[ohsnap]

Bringing this back up again.......I got an alert from Range Rover about this very thing. The RR is over the 6,000 lb minimum and qualifies for the break.

Moltar......did you ever do it? My boyfriend's looking into starting a small business and we're SUV shopping for March. Just something I was curious about.

[VenSeattle]

The tax breaks for large SUVs are rooted in long-standing deductions for small business purchases, including trucks and vans for farmers, contractors and others who need heavy vehicles.

IMO, the actual purpose of this tax-break still has merit... small businesses need as much help as possible to survive.

As for those who use it as a loop-hole... they're still buying a vehicle out of desire, not cost. They're not buying it because they can't afford anything else.

[supermoto]

IMO, the actual purpose of this tax-break still has merit... small businesses need as much help as possible to survive.

As for those who use it as a loop-hole... they're still buying a vehicle out of desire, not cost. They're not buying it because they can't afford anything else.

209473[/snapback]

The people who hate large SUVs like to call this a tax break as if people who use the deduction are paying less tax in the long term. In reality they only get to accelerate the deduction into an earlier period. If they sell the vehicle for more than the tax base, they will have to count it as income. If they keep it for a long enough time, they will just get a lower tax deduction in later years.

[Robert Hall]

Bringing this back up again.......I got an alert from Range Rover about this very thing.  The RR is over the 6,000 lb minimum and qualifies for the break.

Moltar......did you ever do it?  My boyfriend's looking into starting a small business and we're SUV shopping for March.  Just something I was curious about.

209466[/snapback]

I didn't do it..I stayed with my Grand Cherokee... but I have consultant friends one bought a Yukon Denali XL and another bought an LR3--that took advantage of it..they use the vehicle as a business expense to drive to and from home and their clients during the week, haul the family on the weekend.

I didn't really seriously consider it..I really don't want anything bigger than my GC...

Edited November 16, 2006 by moltar

[razoredge]

I have been a self employed business. The 36 cents per mile or what ever it currently is...is more than enough off the gross income. This is such a BS loop hole, clearly aimed as another benefit for the well to do. If you can afford one of these new 60,000 tanks your golden, but if you are money conscience and buy something more practical, your out of the loop.

There should be no loop !

[ehaase]

A little history may help here.

Prior to 1982, the depreciation rules for cars and trucks were no different from any other asset.

In 1982, Congress passed a new tax law called TEFRA (Tax Equity Fairness and Responsbility Act). The law contained numerous tax increases. However, Code Section 280F imposed limitations on depreciation on cars with unloaded gross vehicle weight under 6,000 lbs and trucks with loaded (truck + passengers + cargo) gross vehicle weight under 6,000 lbs. Consequently, the depreciation limits did not apply to heavy duty trucks. The purpose of the law was to limit tax deductions on luxury cars. Only some Rolls Royces weighed over 6,000 lbs; all other cars were under 6,000 lbs.

Back in 1982, the truck market was much smaller than now, and the only SUV's were the full size, relatively low volume Suburban, the Bronco, and the Grand Wagoneer. Exempting trucks protected businesses, such as contractors.

Another provision of the tax, Section 179, allows expensing, instead of depreciation of assets. Back in the early 1980's, the deduction was only $3,000, but over the years has increased substantially. By 2002, the deduction was about $24,000.

At the same time, sales of SUV's exploded. In 2003, Congress increased the Section 179 deduction to $100,000. Since full size SUV's were considered as trucks, not cars, and were not subject to the depreciation limits for cars and small trucks, by 2003, the cost of an SUV used 100 percent for business could be expensed up to $100,000, just as for any other truck with an unloaded weight over 6,000 lbs.

In 2004, under some public pressure, Congress limited the Section 179 deduction for SUV's to $25,000. Therefore, currently a business could expense the cost of a full size pickup up to $100,000, but can only expense the cost of an SUV up to $25,000.

I guess a solution would be to increase the weight limits for vehicles subject to the 280F depreciation rules or to reduce the Section 179 deduction limits even further. Of course, it all really is a timing adjustment.