One year ago, you could have driven your new three-ton,
business-use SUV through a little-known tax loophole and written
off the entire purchase price in the first year.
But Congress has tightened that controversial loophole
for high-end luxury SUVs, though many of the rank-and-file heavyweights
will still breeze through with the same 100-percent write-off in
the year of purchase.
The furor all started a couple years ago when some
sharp-eyed accountants and their professional clients discovered
a glitch in the tax code that proved big enough to drive a Hummer
through, tax free.
The tax provision's original intent back in the 1970s
was to enable small farmers and self-employed workers to buy a truck
or van without having to fork over the luxury car tax that was then
in effect and has since expired. At the time, it made perfect sense
to qualify the vehicles by weight because no luxury cars exceeded
the 6,000-pound gross vehicle weight threshold.
Under the Jobs and Growth Act of 2003, Congress
raised the deduction ceiling for these heavy-class vehicles from
$25,000 to $100,000, bumped the "bonus deduction" from
30 percent to 50 percent, and left in place the accelerated five-year
depreciation schedule. This, in effect, made virtually all three-ton,
business-use SUVs fully deductible in the first year. More than
50 vehicles qualified for the tax break.
Sure enough, tax-savvy self-employed professionals
such as doctors, dentists and yes, accountants, connected the
weight of today's luxury SUVs with the obscure tax loophole and
started sporting heavy iron in order to deduct the entire purchase
price in the first year. Which might explain why traffic lanes
have seemed a little narrower lately.
Robin Hood in reverse
That blatant abuse of the intent of the tax code didn't
sit well with the Taxpayers
for Common Sense, the watchdog organization that first cried
foul on the high-styling urban cowboys. The tax group estimated
that the so-called SUV tax break cost taxpayers between $840 million
and $987 million for every 1,000 vehicles sold. Worse, it was
robbing the poor to feed the rich.
Environmental groups soon weighed in as well, expressing
outrage that the tax code was, in effect, encouraging consumers
to purchase gas-guzzling behemoths. What's worse, they pointed
out, is that because the big rigs are categorized by weight with
farm machinery, SUVs are exempt from federal fuel efficiency guidelines.
Congress reversed itself last fall with passage
of the American
Jobs Creation Act of 2004 and cinched back the SUV loophole
from $100,000 to $25,000 while retaining both the 50-percent bonus
deduction and the five-year depreciation schedule. The deduction
is claimed as a Section
179 expense, meaning you must be in business, filing a Schedule
C or corporate tax return, to claim it.
Will the lower expense ceiling stop the heavy-metal
stampede? Not likely, says Ronnie Windham, a certified public
accountant in Oxford, Miss.
"I don't think it's going to affect people's
buying habits. Most people buying SUVs are paying $40,000 or $50,000,
so by the time you take the 50 percent bonus deduction and the
$25,000 depreciation expense, most of them are still going to
write off the full amount."
Windham notes that SUVs also enjoy what is called
a maker's depreciation. "There's no dollar limit on the amount
you take off each year, it's just based on what the vehicle cost.
It actually takes you about six years to fully write off a five-year
vehicle," he says.
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on next page)
-- Posted: Feb. 15, 2005
