PHOnos
01-31-2003, 01:50 PM
Hummer of a $75,000 tax write-off
Bush proposal would triple what some see as SUV loophole
By Miguel Llanos
MSNBC
Jan. 31 — Ever thought of buying a Hummer? If you run a small business, and if President Bush’s proposal to triple a tax deduction is approved, you could write off up to $75,000 of the cost. The possibility has raised protests, because the current deduction — originally meant for farmers and construction firms — is being used by some realtors, doctors and lawyers to write off costs of the most gas-guzzling SUVs. Defenders of the proposal counter that even if some abuses exist, limiting the write-off would penalize legitimate uses.
LEADING THE CHARGE against the SUV deduction is Sen. Barbara Boxer, D-Calif. She introduced legislation Thursday to disallow the heaviest SUVs from being deducted as a small-business capital expense.
Used also for office equipment like computers, the deduction currently is limited to $25,000 a year. The president wants to increase it to $75,000 as part of his economic stimulus plan.
Under a 1986 provision aimed at helping business owners with heavy equipment, vehicles weighing more than 6,000 pounds when fully loaded may be deducted as a capital expense — and therein lies the controversy.
More than a dozen SUV models — the 10- to 15-mpg Hummer H1 and H2 among them — break that weight barrier, making them eligible for the tax write-off. That’s true even if the small-business owner is a realtor, doctor, lawyer or the like who might use the vehicle for personal use part of the time.
ALL VEHICLES EQUAL?
Boxer’s bill would treat these heavier SUVs like cars and lighter SUVs: an expense that can be depreciated over five years for up to $14,460.
“Some people are inappropriately using the small-business capital expense tax deduction to deduct a significant portion of the cost of the largest and most environmentally destructive sports utility vehicles on the market,” Boxer wrote the Senate Budget Committee last week following press reports about the issue.
“As a result, people who do not need a large vehicle for business purposes are buying the largest Hummer SUVs, Mercedes SUVs, BMW SUVs and other supersized SUVs.”
Other critics include David Nemtzow, president of the Alliance to Save Energy, who called Bush’s proposal “outrageous,” especially since tax credits for fuel-efficient gasoline-electric hybrids “remain in a congressional traffic jam.”
Given “possible (oil) price and supply shocks if war with Iraq materializes, the president should be preaching fuel economy, not encouraging the purchase of vehicles that take the opposite route,” he said.
Some accountants are advising small business clients -- from farmers and developers to doctors and lawyers -- to purchase heavy vehicles in order to claim a special tax write-off for users of heavy equipment – identified as weighing more than 6,000 lbs. Many SUVs also fall into that category, raising concerns that some people might be abusing a deduction originally meant for small farmers and construction firms. President Bush’s proposal to triple that small business deduction has fueled the debate. Click on a vehicle maker to see which models qualify, as well as potential deductions.
OTHER SUV DISPARITIES
Critics note that the deduction also exempts the heaviest SUVs from the 3 percent tax on luxury vehicles and can be used in conjunction with two other small-business write-offs: a bonus 30 percent depreciation on capital expenses, enacted as part of post-Sept. 11 legislation; and a 20 percent deduction of any remaining purchase price, part of the normal depreciation for business vehicles.
A $55,000 Hummer H1, for example, could qualify for the $25,000 deduction, plus $9,000 from the 30 percent bonus, plus $4,200 from the depreciation.
On top of that, critics say, carmakers get a break from the federal government because their SUV fleets aren’t required to meet the same mileage benchmark as smaller vehicles.
A separate bill introduced Thursday would raise the SUV and pickup mileage standards from 20.7 mpg at present to 27.5 mpg, the current average for smaller vehicles. Two Senate Republicans, Olympia Snowe and Susan Collins, both of Maine, joined Sen. Dianne Feinstein, D-Calif., and several other Democrats in sponsoring the bill. A similar measure died last year.
TREASURY DRAIN SEEN
The IRS doesn’t keep tabs on how many of the capital expense deductions go to write off SUVs. But Taxpayers for Common Sense, a watchdog group against government waste, estimates that the president’s proposal could mean $900 million a year in lost treasury revenue for every 100,000 SUVs written off.
“This will make any luxury SUV priced under $75,000 completely deductible in the first year, while making a $106,000 Hummer H1 a ridiculous value,” said Aileen Roder, the group’s tax program director.
“We do support helping small business,” Roder said. “But under the Bush economic stimulus plan, it’s a no-brainer for businesses to buy gas-guzzling SUVs” instead of more practical vehicles.
Lawmakers should “keep the original intent” of the tax code, Roder said, but change the criteria so that it’s based not on vehicle weight but on function.
The National Federation of Independent Business, a small-business advocacy group, disagrees.
“There’s a slippery slope the minute you start limiting what people can buy,” said Dena Battle, a legislative analyst for the group.
“There could be people who abuse the expensing provision, but I don’t think that’s the norm,” she said, adding that closing the deduction for heavy vehicles would “ultimately penalize the people legitimately using the expense provision.”
Bush proposal would triple what some see as SUV loophole
By Miguel Llanos
MSNBC
Jan. 31 — Ever thought of buying a Hummer? If you run a small business, and if President Bush’s proposal to triple a tax deduction is approved, you could write off up to $75,000 of the cost. The possibility has raised protests, because the current deduction — originally meant for farmers and construction firms — is being used by some realtors, doctors and lawyers to write off costs of the most gas-guzzling SUVs. Defenders of the proposal counter that even if some abuses exist, limiting the write-off would penalize legitimate uses.
LEADING THE CHARGE against the SUV deduction is Sen. Barbara Boxer, D-Calif. She introduced legislation Thursday to disallow the heaviest SUVs from being deducted as a small-business capital expense.
Used also for office equipment like computers, the deduction currently is limited to $25,000 a year. The president wants to increase it to $75,000 as part of his economic stimulus plan.
Under a 1986 provision aimed at helping business owners with heavy equipment, vehicles weighing more than 6,000 pounds when fully loaded may be deducted as a capital expense — and therein lies the controversy.
More than a dozen SUV models — the 10- to 15-mpg Hummer H1 and H2 among them — break that weight barrier, making them eligible for the tax write-off. That’s true even if the small-business owner is a realtor, doctor, lawyer or the like who might use the vehicle for personal use part of the time.
ALL VEHICLES EQUAL?
Boxer’s bill would treat these heavier SUVs like cars and lighter SUVs: an expense that can be depreciated over five years for up to $14,460.
“Some people are inappropriately using the small-business capital expense tax deduction to deduct a significant portion of the cost of the largest and most environmentally destructive sports utility vehicles on the market,” Boxer wrote the Senate Budget Committee last week following press reports about the issue.
“As a result, people who do not need a large vehicle for business purposes are buying the largest Hummer SUVs, Mercedes SUVs, BMW SUVs and other supersized SUVs.”
Other critics include David Nemtzow, president of the Alliance to Save Energy, who called Bush’s proposal “outrageous,” especially since tax credits for fuel-efficient gasoline-electric hybrids “remain in a congressional traffic jam.”
Given “possible (oil) price and supply shocks if war with Iraq materializes, the president should be preaching fuel economy, not encouraging the purchase of vehicles that take the opposite route,” he said.
Some accountants are advising small business clients -- from farmers and developers to doctors and lawyers -- to purchase heavy vehicles in order to claim a special tax write-off for users of heavy equipment – identified as weighing more than 6,000 lbs. Many SUVs also fall into that category, raising concerns that some people might be abusing a deduction originally meant for small farmers and construction firms. President Bush’s proposal to triple that small business deduction has fueled the debate. Click on a vehicle maker to see which models qualify, as well as potential deductions.
OTHER SUV DISPARITIES
Critics note that the deduction also exempts the heaviest SUVs from the 3 percent tax on luxury vehicles and can be used in conjunction with two other small-business write-offs: a bonus 30 percent depreciation on capital expenses, enacted as part of post-Sept. 11 legislation; and a 20 percent deduction of any remaining purchase price, part of the normal depreciation for business vehicles.
A $55,000 Hummer H1, for example, could qualify for the $25,000 deduction, plus $9,000 from the 30 percent bonus, plus $4,200 from the depreciation.
On top of that, critics say, carmakers get a break from the federal government because their SUV fleets aren’t required to meet the same mileage benchmark as smaller vehicles.
A separate bill introduced Thursday would raise the SUV and pickup mileage standards from 20.7 mpg at present to 27.5 mpg, the current average for smaller vehicles. Two Senate Republicans, Olympia Snowe and Susan Collins, both of Maine, joined Sen. Dianne Feinstein, D-Calif., and several other Democrats in sponsoring the bill. A similar measure died last year.
TREASURY DRAIN SEEN
The IRS doesn’t keep tabs on how many of the capital expense deductions go to write off SUVs. But Taxpayers for Common Sense, a watchdog group against government waste, estimates that the president’s proposal could mean $900 million a year in lost treasury revenue for every 100,000 SUVs written off.
“This will make any luxury SUV priced under $75,000 completely deductible in the first year, while making a $106,000 Hummer H1 a ridiculous value,” said Aileen Roder, the group’s tax program director.
“We do support helping small business,” Roder said. “But under the Bush economic stimulus plan, it’s a no-brainer for businesses to buy gas-guzzling SUVs” instead of more practical vehicles.
Lawmakers should “keep the original intent” of the tax code, Roder said, but change the criteria so that it’s based not on vehicle weight but on function.
The National Federation of Independent Business, a small-business advocacy group, disagrees.
“There’s a slippery slope the minute you start limiting what people can buy,” said Dena Battle, a legislative analyst for the group.
“There could be people who abuse the expensing provision, but I don’t think that’s the norm,” she said, adding that closing the deduction for heavy vehicles would “ultimately penalize the people legitimately using the expense provision.”