Tax break fuels SUV purchases

Tax break fuels SUV purchases
Full story: http://seattletimes.nwsource.com/html/businesstechnology/134602924_trucktaxbreak26.html

By Jeff Plungis
The Detroit News

WASHINGTON  Karl Wizinsky wasn't thinking about buying a new vehicle, and certainly not a big SUV.

So why is there a brand-new $47,000 Ford Excursion sitting in his driveway? He was able to write off $32,000 of the purchase price as a business expense.

"We really did it because it was a pretty hefty deduction," said Wizinsky, a health-care consultant in Novi, Mich.

Vehicles eligiblefor tax breaks

Thirty-eight models that qualify for an extra $24,000 accelerated-depreciation tax break:

BMW X5, Cadillac Escalade, Chevy Astro, Chevy Avalanche, Chevy Express, Chevy Silverado, Chevy Suburban, Chevy Tahoe, Dodge Durango, Dodge Ram Van, Dodge Ram Maxi Van, Dodge Ram Wagon, Dodge Ram 1500, Dodge Ram 2500, Dodge Ram 3500, Ford Excursion, Ford Expedition, Ford Econoline E-150, Ford Econoline E-250, Ford Econoline E-350, Ford F-150, Ford F-250, Ford F-350, GMC Yukon, GMC Safari, GMC Savana, GMC Sierra, GMC Sierra Denali, Land Rover Discovery, Land Rover Range Rover, Lincoln Blackwood, Lincoln Navigator, Mercedes ML 320, Mercedes ML 500, Mercedes ML55 AMG, Toyota Land Cruiser, Toyota Sequoia, Toyota Tundra While the tax code allows big business-expense write-offs for SUVs, prospective buyers of fuel-efficient hybrid cars qualify for a tax credit of only a few thousand dollars.

The law seems counter to national goals of improving vehicle fuel efficiency to reduce U.S. dependence on foreign oil and cut greenhouse gasses. But accountants and auto dealers are touting it. Small-business owners such as Wizinsky are advised that buying a gas-guzzler is a way to cut end-of-the-year tax bills.

"We recognized it immediately and started informing people about how to use it," said James Jenkins, an accountant in Southfield, Mich. "It's just fabulous. My clients have been drooling."

Jenkins said five clients have used the loophole and five more are considering it. He said he also test-drove several SUVs, thinking the deal might be too good to pass up.

"It makes you think very hard about it," Jenkins said. "But it was a 30 percent larger vehicle than I wanted."

Here's how it works: Suppose a business owner wants to buy a $45,000 luxury SUV for use in his business. He or she could write off $24,000 of the cost under section 179 of the tax code as accelerated depreciation.

Then the buyer could write off additional depreciation of the remaining $21,000 under a five-year schedule  20 percent, or $4,200, in the first year. That's a total $28,200 tax write-off. The balance of the vehicle could be written off over the next five years.

A more expensive large vehicle, such as a Mercedes E-class SUV, a Range Rover or a BMW X5, would qualify for an even greater tax break.

The break for trucks got bigger this year under a schedule Congress adopted in 1996. That year, businesses could claim $17,500 in accelerated depreciation on equipment. That lump sum increased to $20,000 last year. It went up to $24,000 this year. Next year and thereafter the deduction will be $25,000.

The 1996 schedule was part of congressional efforts to change tax laws to encourage business investment. The loophole was aimed at farmers, so their working pickup trucks would not be treated like luxury cars, for which the code is not as generous, tax experts say.

Long-standing limits on deductions prevent taxpayers from subsidizing luxury-car purchases, but the limits do not apply to 38 light trucks that weigh 6,000 pounds or more, including the Cadillac Escalade, Dodge Durango, Excursion and Lincoln Navigator.

For example, a business owner wanting to buy a Lincoln Town Car would have to live with a $7,660 deduction, one-fourth what he might save by buying a Lincoln Navigator. It would take more than 15 years to recoup the entire cost of the car.

There is no indication that federal officials want to close the loophole. A proposal to extend bigger tax breaks to environmentally friendly vehicles is stalled in Congress, and President Bush plans even higher depreciation tax breaks as part of the next round of tax cuts.

The government hasn't calculated the total cost of the tax break, but Taxpayers for Common Sense, a nonpartisan Washington, D.C., watchdog group, says it could cost taxpayers $840 million to $987 million for every 100,000 vehicles businesses buy, much higher than several other tax breaks:

 Credit aimed at making it easier for small businesses to comply with the Americans with Disabilities Act costs $525 million for every 100,000 uses.

 A tax credit to reimburse teachers for classroom supplies annually costs the treasury $250 million for every 100,000 uses.

 A provision allowing taxpayers to put up to $3,000 of tax-free earnings a year in private retirement accounts costs about $90 million for every 100,000 taxpayers.

Aileen Roder, program director for Taxpayers for Common Sense, questioned whether there is a national need to subsidize sales of the largest light trucks, given that Americans are buying SUVs in record numbers.

"This is one of the most lucrative breaks in the tax code," Roder said. "We're making it a fiscal no-brainer for businesses to buy giant SUVs."

In 1996, Congress estimated the five-year cost of the tax break  for all business equipment  to be $1.6 billion. But luxury SUVs had barely cracked the market at that time. IRS spokesman Bruce Friedland said the agency does not keep data on how much the tax break has cost.