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SUV TAX DEDUCTION UPDATE 10-15-04

Posted on Saturday, October 23rd, 2004 by

SUV Tax Changes Before Congress – SUV Tax Loophole is changing

10/23/2004 Update – This bill was signed with little fanfare on 10/22/2004. Details on the entire bill are HERE. For details on how the SUV TAX Deduction has changed, read this page. There are still attractive “bonus” features in effect for pickups and some SUV’s. Read Here

10/15/2004  UPDATE- This Bill is now on the President’s desk to be signed. President Bush is expected to sign into law this week or early next week a rollback of the controversial loophole, which allowed hefty federal tax breaks for business owners buying large SUVs and heavy-duty trucks for work use. The change, which will take effect immediately, is part of a massive corporate tax-break bill, topping 600 pages, passed by Congress. More Here

Changes to Section 179 last year, commonly called the SUV Tax Deduction, expanded this popular tax break from $25,000 to $100,000 and lifted depreciation schedules. This combination of factors effectively allows anyone who uses a vehicle in their business at least 50% of the time to buy the biggest and most expensive SUV and write it off in one year. Here is the SUV Tax Deduction – Vehicle List. This created a huge incentive for anyone running their own business to purchase that luxury Escalade or BMW X5 and enjoy a hefty tax advantage for 2004.

Originally intended to help the self employed ranchers, farmers and contractors purchase that heavy pick up truck or van necessary for their business, the SUV Tax Loophole was quickly exploited by accountants, lawyers and doctors.  Car dealers actively used the SUV Tax Deduction to close the sale and it caused a boom in luxury SUV sales. The original SUV Tax Loophole, which has certain restrictions including gross vehicle weight restrictions was set to expire at the end of 2005.

Knowing the inequitable tax situation most small business owners and entrepreneurs find themselves in, we recommend taking advantage of each and every tax break to the fullest extent of the law.

The SUV Tax Deduction quickly raised the ire of every tax fairness, environmental and consumer group in the country.  They were infuriated that white collar professionals were buying the biggest and most luxurious SUVs on the market with price tags well over $50,000 in many cases…. and then writing them off. Critics also were quick to criticize the tax break as an excessive benefit for the wealthy.

The Situation as of 10/07/04

Time is running out for small business owners who want to avail themselves of this attractive tax break. This week, the House and Senate are expected to vote to roll the deduction back to $25,000. President Bush must sign the bill for it to become law and he is expected to do so.

The changes to close the SUV Tax Loophole were introduced by Sen. Don Nickles (R-OK). His bill would extend the business equipment tax deduction to 2007 but SUVs would be limited to $25,000 plus accelerated depreciation.

Still some HUGE advantages in this bill- Read below

Showing a streak of common sense, Nickle’s bill keeps the $100,000 deduction in place for most of the pick up trucks and heavy work vans – the original intent of the IRS deduction that is now commonly called the SUV Tax Loophole.

According to the Detroit News auto Insider, many SUVs will still qualify for a hefty discount. Besides the $25,000 basic equipment deduction, SUVs still qualify for “bonus depreciation”, an added write off of 30 percent of the purchase price above $25,000. (It is my understanding the bonus depreciation will run through the end of 2004. Check with your tax professional. -ed.) Beyond that the regular depreciation rules of 20 percent in the first year will apply.

Using the uber male Hummer H1 as an example, we can write off $60,722 of the $106,185 sticker price in the first year under the revised rules. A $25,000 equipment deduction, $24,356 in bonus depreciation and $11,366 in regular depreciation.

While there is a slim chance the bill might get stalled over additional facets of the bill which include regulating tobacco as a drug, it is unlikely. The SUV Tax Deduction has been welcome relief for hard working contractors, a stimulus for the economy and a thorn in the side of environmentalists.

 

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