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George Saenz, the Bankrate.com Tax Talk columnistSUV tax break skids to a halt

Dear Tax Talk,
I have recently learned that my new-to-me 2003 Kia Sedona LX has a gross vehicle weight requirement (GVWR) of 5,985 pounds, just under the 6,000 GVWR for a Section 179 deduction. I'm only 15 pounds short. Any suggestions as to how to qualify or am I a day late and 15 pounds short? -- Larry

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Dear Larry,
Some folks may be a day late under the new tax law. You're just 15 pounds short.

For many years now, a passenger automobile with an unloaded gross vehicle weight rating of 6,000 pounds or less has been subject to depreciation limitations, including the amount that could be expensed under Section 179. The intent is that the government should be not subsidizing through tax write-offs the luxury portion of a businessman's automobile choice.

In other words, the boss that has a Mercedes should get the same deduction as the guy who has a Honda. When these rules were passed in 1984, an exception was made for trucks with loaded-gross-vehicle ratings of more than 6,000 pounds, because they were considered work trucks. An SUV is considered to be a truck and since 1984, SUVs have grown considerably in size.

If the price of gas and your conscience are not enough to dissuade you from purchasing these urban tanks, the loophole relating to SUVs has changed. You would think that Congress would have just made them subject to the same rules as other automobiles, but no; instead, they continued to provide an incentive for business owners to purchase oversized trucks. Revenue Procedure 2004-20 provides that a new passenger vehicle in 2004 will get a maximum depreciation deduction including Section 179 and bonus depreciation of $10,610 and a 6,000-pound-or-less truck will get $10,910.

If you bought a more-than-6,000-pound SUV prior to Oct. 22 (the date President Bush signed the tax bill into law), you get the possible $100,000 expensing under Section 179. If you bought the vehicle on or after Oct. 22 and its gross vehicle weight requirement is between 6,000 and 14,000 pounds, you're limited to $25,000 of Section 179 expense, plus bonus depreciation and regular depreciation.

The tax bill gives an example of a $70,000 heavy SUV, qualifying for a $52,000 first-year deduction instead of $70,000. Compare this to an under $11,000 deduction for a $70,000 Mercedes, and it's no small wonder why we're driving in circles with deficits and energy prices.

To ask a question on Tax Talk, go to the "Ask the Experts" page, and select "taxes" as the topic.

Bankrate.com's corrections policy -- Posted: Nov. 16, 2004
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