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SUV TAX Loophole - SUVs Slip Through Tax Loophole; Part
of our SUV TAX DEDUCTION SERIES
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
*******************************
It used to be that the company car was for executives and
the delivery fleet was for hauling products. At tax time, the Internal
Revenue Service treated them like the second cousins they are. Luxury cars
can be written down a measly couple thousand dollars at a crack, but heavy
trucks, expected to go through some wear and tear, can be fully depreciated
over five years.
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Then along came a tax curveball in the form of the sport utility vehicle.
It's heavy enough to squeeze into the category of a working truck, yet
executives don't mind zipping around in one. Vehicles weighing over 6,000
pounds aren't classified as "luxury" for tax purposes, so they can be
written off for business use over just five years. This amounts to thousands
of dollars in tax savings.
Tom Cooksey, a commercial real estate broker in Atlanta, was tipped off to
this "heavy metal" tax trick by his accountant just as Cooksey was thinking
about buying something bigger than his Jeep. "When I found out I could do
accelerated depreciation, that really motivated me to go ahead," he says.
Now he owns a $41,000 Chevrolet Suburban and is considering buying a second
one.
It wasn't long ago that a Suburban, a hulk at over 7,000 pounds, might be
considered a gauche vehicle for a company president. Not anymore. As Cooksey
puts it, "For most clients from the CEO down, it's an acceptable vehicle.
They say 'Wow!'"
Other SUVs over 6,000 pounds include the Ford (nyse: F) Excursion and Toyota
(nyse: TM) Landcruiser. "Anyone looking at buying a company car needs to be
aware that this benefit is out there," says Roger Lusby, a tax partner at
Frazier & Deeter, an accounting firm in Atlanta. "Depreciation rules on
company-owned autos for business purposes are usually strict."
Regardless of how much is spent on luxury cars--anything under 6,000 pounds,
that is--the depreciation allowance is capped at $3,060 the first year and
dwindles to $1,775 from the fourth year onward. "You'll probably trade in
that vehicle before you've recovered its cost in depreciation," says Bob
Trinz, editor of RIA's Federal Tax Weekly Alert newsletter.
Now look at what can be written off if you buy a $45,000 SUV over 6,000
pounds. Up to $20,000 of the initial cost can be written off in the first
year as a business equipment expense. Then another $5,000, or 20% of the
balance, can be written off as depreciation. The next year, 32% of the
balance can be depreciated. At the end of five years, the entire cost will
have been written off.
Another advantage is that SUVs are not subject to the 5% luxury auto excise
tax that is usually levied on any vehicle that costs at least $38,000.
If the SUV is not being used entirely for business, the deductions are
proportional to use. As with any listed property for a business, usage logs
should be kept, in this case mileage logs. "If you're audited and you wrote
off a $45,000 vehicle, the auditor would express some interest in your
records," Trinz cautions.
Another caveat: It's not absolutely certain that the IRS is going to go
along with all this much longer. Trinz assumes it will because of a 1995
private letter ruling in which the IRS said that the luxury auto excise tax
does not apply to SUVs over the weight limit. By extension, Trinz explains,
SUVs probably do not count as luxury vehicles at all.
"It's a great selling point," says the sales manager at a Ford dealership in
Atlanta. Most customers--and apparently most auto dealers--are unaware of
the SUV's business tax advantages. Some business managers in the know would
probably rather keep quiet for fear that Uncle Sam will slam the door on it.
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
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