November 2003 Update
Related Articles:
SUV Tax
Deduction Update - MUST READ!
SUV TAX
DEDUCTION LIST
Tax Deductible SUV
Section 179-SUV Tax
Deduction
SUV Tax Deduction -
Section 179 Pitfalls
SUV TAX
Loophole
*********READ THIS FIRST*********
The SUV Tax Deduction has
been radically changed and reduced -
READ HERE
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SUV
tax loophole widens
A 1997 provision in the U.S. tax code (Section
179) provided small businesses with a tax write-off of
up to $25,000 for a vehicle weighing more than 6,000
pounds. The original intent behind this provision was to
encourage investments in pickup trucks, minivans, and
other needed service vehicles. A far smaller incentive
was provided for cars—less than $7,000 over two years.
The explosion of SUV, pickup, and minivan sales in
America’s passenger vehicle fleet has turned this small
business benefit into a massive loophole in the tax law.
Currently, 38 different passenger SUVs including the
Lincoln Navigator, which nets a combined 15 miles per
gallon according to the Environmental Protection Agency
(EPA), the Cadillac Escalade (16 mpg), the BMW X5 (18
mpg), the Mercedes-Benz ML55 (16 mpg), and the notorious
Hummer H2 (11 mpg) all weigh more than 6,000 pounds.
This loophole allows some of the most fuel-inefficient
passenger vehicles on the road today to qualify for a
significant tax break.
In 2003,
lawmakers expanded the tax deduction to a whopping
$100,000 as part of the $350 million tax cut package.
Yet Congress did not change the weight-based
classification of the vehicles, creating a huge benefit
for the largest, least efficient vehicles. With the
current top business tax rate at 35 percent, this
incentive program effectively cuts $18,900 off the price
of a $54,000 Escalade.
Accountants, SUV dealers rush to capitalize
Around the country, auto dealers such as "the
Car Guy" Jerry Reynolds in Texas and hundreds of
accountants and online tax management sites are
encouraging small business owners such as doctors,
lawyers, and realtors to rush out and take advantage of
this tax windfall. One advertisement from Dugan &
Lopatka, an accounting firm in Wheaton, IL, reads,
"Write-Off 100% of Your New SUV? Yes, If It’s Under
100,000!"
According to
a November 7, 2003, article in the Washington Post,
Dugan & Lopatka were so inundated with phone calls
regarding their advertisement they nearly had to shut
down their switchboard. Industry analysts expect a
noticeable spike in purchases in November and December
due to the typical year-end rush to claim the deduction
for 2003 tax returns.
Senators push for closure of loophole
The Senate Finance Committee staff actually
proposed fixing the loophole in a little-noticed
provision in a corporate tax bill. This provision raised
the weight limit to 14,000 pounds, enough to disqualify
even the Hummer. However, this important language
adjustment looks unlikely to become law, as the House
Ways and Means Committee has yet to even consider a
companion bill.
Bills
introduced by Senator Barbara Boxer (D-CA) and
Representative Anna Eshoo (D-CA) would take a different
approach to closing the SUV tax loophole. In The SUV
Business Tax Loophole Closure Act, they propose that
SUVs weighing 6,000 pounds or more simply be
reclassified as cars under the tax code. This would
balance the incentives so that small businesses aren’t
encouraged to purchase a large truck simply to take
advantage of a huge tax deduction. Unfortunately,
Senator Boxer’s opportunity to offer her language as an
amendment to the so-called "stimulus package" was lost
in the late-night rush to pass that sweeping tax cut
bill.
Hybrid vehicle credits are phasing out, CLEAR Act
attempts to improve them
In May 2002, the IRS declared gasoline/electric
hybrids eligible for tax deductions as "clean fuel"
vehicles under the Energy Policy Act of 1992 (PL
103-486). The current deduction ceiling is $2,000, but
the tax deduction is set to end in 2006, with $500 less
available each year as the deduction is phased out.
UCS has been
working with a bipartisan group of senators and
representatives to develop a comprehensive package of
tax credits for the purchase of a full range of
alternative-fuel and advanced-technology vehicles. This
package was introduced by Senators Orrin Hatch (R-UT)
and Jay Rockefeller (D-WV) and Congressman Dave Camp
(R-MI) as the CLEAR Act in March 2003. Improving on
current tax law, these incentives are designed to be
performance-based, ensuring that credits go to vehicles
that get significant fuel economy and low tailpipe
emissions. The CLEAR Act passed the Senate Finance
Committee with strong environmental provisions intact,
but unfortunately, the House dramatically weakened the
bill by removing the hybrid tax credit and replacing it
with a credit for diesel vehicles. The final version of
the federal energy legislation is likely to contain some
form of these tax incentives. UCS will continue to push
for performance-based tax credits that will help make
the cleanest vehicles more affordable.
