The new SUV tax bill quadruples the
deduction available on small-business equipment purchases, which include
trucks. The catch? You've got to buy a big one.
By Des Toops
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SUV TAX Loophole
*********READ THIS
FIRST*********
The SUV Tax Deduction has been radically
changed and reduced - READ HERE
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The SUV loophole just
got big enough to drive a Hummer through.
Among the provisions of the tax package just approved by Congress is an
increase in the deduction allowed for small-business equipment
purchases, which rises from $25,000 to $100,000. That means real estate
agents, lawyers, doctors -- anybody who files a Schedule C or corporate
tax return -- can write off the entire cost of virtually any big
sport-utility vehicle. The potential tax savings in the top bracket is
$35,000.
The dramatically higher limit greatly simplifies the math. The deduction
for SUV purchases was already pretty hefty, but it came in three parts:
A $25,000 equipment deduction, plus 30% of the remaining price (courtesy
of the 2002 economic stimulus bill), plus the standard five-year
depreciation schedule on the remainder. On a $72,000 Range Rover, the
deduction came to about $45,000 the first year, for a tax savings of
more than $16,000.
It's so much easier -- and cheaper -- to write the whole thing off.
Simply multiply the purchase price by your tax rate. The tax savings on
that same Range Rover? More than $25,000 in the top brackets. In
contrast, those who buy ultra-efficient gas-electric hybrids for
personal use get a tax deduction of $2,000, worth at most $700.
The business deduction is proportional; that is, the write-off must
reflect the percentage of the vehicle's use that is devoted to business.
The minimum is 50%. And the deduction applies only to vehicles
designated as light trucks. Far less generous rules apply to business
use of cars and smaller trucks.
Bigger is better
The catch is that the qualifying vehicle must have a gross vehicle
weight rating (GVWR) over 6,000 lbs. That's the weight of the truck plus
its maximum payload. At one time, the limit was believed to be high
enough to eliminate all but the loophole's intended target, farm and
industrial vehicles. Now added layers of safety and luxury equipment
have made all vehicles porkier. Even some midsized sport-utilities just
creep over that 6,000 GVWR line. (The GVWR typically is printed on the
inside of the driver's door; check as you shop.)
The least expensive SUV to cross the three-ton GVWR threshold is the
Dodge Durango, which has a sticker price starting at about $29,000. All
of that would be deductible under the new law and would save someone
paying the top rates at least $10,000. (DaimlerChrysler currently offers
a $4,500 rebate on the Durango, which would make the net outlay for a
small business owner approximately $14,500 -- half its MSRP.)
Only two sport-utilities would bust the $100,000 limit: the $105,160
Hummer H1 (last seen thundering across Iraq in olive drab), and the
Porsche Cayenne, which, when loaded with features such as a
450-horsepower twin-turbo V-8 and a $2,300 spare tire, can top $100,000
and 150 mph with ease.
The most fuel-efficient SUV to qualify is the $39,500 BMW X5, with EPA
ratings of 16 city and 21 highway. The worst? They're so big they fall
outside the scope of the rating system, but expect single digits -- and
remember that the cost of gasoline is deductible, too.
Bear in mind that this $100,000 SUV loophole could snap shut; lawmakers
who led a failed effort earlier this year to remove preferential tax
treatment for sport-utilities have promised to try again.
A shopping guide
Below is a chart of sport-utility vehicles with GVWR above 6,000 lbs.,
plus their EPA mileage ratings. In addition, all full-size pickup trucks
and vans qualify for the deduction.
