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SUV Loophole Closing 10-15-04

Posted on Thursday, September 2nd, 2004 by

SUV Tax Loophole Set to Close, Feds Changing

The so-called Hummer tax break will soon be another thing in the rearview mirror.

But it won’t be fading entirely.

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.

The new law won’t wipe out all tax breaks for all business buyers of SUVs. And it won’t change anything for businesspeople driving trucks weighing more than 6,000 pounds fully loaded.

But it will scale back some of the biggest deductions that riled the public last December when business owners rushed to buy $110,000 Hummer H1s and deduct almost all of the cost. When the bill is signed, that deduction will be about $76,000.

“It’s kind of a half-measure,” said Paul Gada, a senior small-business tax analyst. “They didn’t really get rid of it.”

And until the law changes, those big SUVs are still fair game, although it costs much more now to fill them up.

“If you’ve been procrastinating, you have an opportunity to go out and get your gas-guzzling SUV,” said Gada, who works for financial researcher CCH Inc., based in Riverwood, Ill.

The new law will expire at the end of 2007.

Some Valley dealers said sales of qualifying vehicles, which included the Dodge Durango, Ford Excursion, Toyota Land Cruiser and 37 others, spiked by as much as 40 percent late last year, spurred in part by tax accountants advising their business clients and car dealers promoting the tax break. Tempe dealer Chapman Chevrolet Isuzu still promotes the tax break online.

The law’s original intent was to help farmers and other small-business owners hauling cargo. Qualifying business owners had to buy vehicles that weighed more than 6,000 pounds fully loaded, but the law didn’t specify what type of vehicle.

More business people began taking the tax break for SUVs, which have grown larger in recent years.

Arizona auto dealers reported doctors, lawyers and real estate agents snapping up the gas guzzlers to snag the deal.

Take a $70,000 Cadillac Escalade. Under the current law, buyers can deduct the SUV’s full cost on their income taxes in the first year.

That lowers their tax bill by about $23,000, depending on the tax bracket, which equals a 33 percent discount on the vehicle.

Under the new law, Escalade buyers can deduct only $25,000 of the $70,000. Like the old law, the new one allows for bonus depreciation, which equals a $17,000 tax-bill cut, or a 24 percent discount on the SUV.

Keith Ashdown, spokesman for the Washington, D.C.-based Taxpayers for Common Sense, said his bipartisan organization opposed the original law but favors the new one.

“Its intent was for hauling hogs, not to purchase Hummers,” Ashdown said. “Our feeling was that it’s a good, common-sense approach.”

The new law won’t affect heavy-duty pickup trucks favored by many Arizona business owners, Phoenix tax attorney Bob Kamman said. Trucks that weigh more than 6,000 pounds fully loaded will follow the current law, with a first-year deduction cap of $100,000.

“A lot of people in Arizona who took advantage of this are contractors and builders using pickup trucks, the urban cowboys,” Kamman said.

 

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