In Tax Twist, Big Vehicles Get the Bigger Deductions 20 December 2002 The New York Times
DETROIT, Dec. 19 -- Dr. Tedd March and his partners know a good deal when they see it. He and his fellow internists who share a practice are taking advantage of an odd confluence of tax breaks to buy giant sport utility vehicles, with a healthy subsidy from Uncle Sam. ''I have one partner who just did it with a Suburban,'' said Dr. March, a 42-year-old physician in Monroe, Mich., about 30 miles south of Detroit. He said he planned to buy a Lincoln Navigator next month, ''and I have a third partner who's going to buy one the year after.'' The tax deductions -- a combination of longstanding provisions in the tax code and breaks instituted after the 2001 terror attacks to spur the economy -- are available only to small-business owners and the self-employed. Environmental groups, alerted to the tax breaks by a report this week in The Detroit News, want them ended. They note that despite concerns about the nation's growing dependence on imported oil, the deductions provide far greater incentive to buy gas guzzlers like Ford Excursions and General Motors Hummers than to buy the most fuel-efficient cars, like the Toyota Prius. All together, an eligible buyer of a 2003 Hummer H2 could deduct $34,912 of the $48,800 base price in the vehicle's first year of service, according to tax rules. That would translate into a tax savings of nearly $13,500 for someone in the highest personal income tax bracket. The biggest piece in the package of tax breaks is an immediate deduction for any depreciable capital expense of $24,000 this year, rising to $25,000 starting next year. Dr. March said that he and his partners are spreading their purchases over three years so that each vehicle would qualify for the full deduction. (He said that an S.U.V. was a necessity for a doctor who has to get to work during Michigan winters.) In addition, businesses can take the normal depreciation on vehicles over five years, starting with a 20 percent deduction in the first year. An extra dollop of tax savings comes from a bonus 30 percent first-year deduction on capital expenses, part of an economic stimulus package approved by Congress after the Sept. 11 attacks. Both are computed after the $24,000 deduction. The deal is not nearly so generous for buyers of less-than-gargantuan vehicles. When the portion of the tax code governing these kinds of deductions was written in the 1980's, deductions for the purchase of an automobile were capped. Currently, a business can deduct no more than $7,660 for a car in its first year of service (including the 30 percent bonus), $4,900 in the second year and less in the succeeding years. The limits were imposed, tax experts say, to prevent businesses from loading up on Cadillacs and Mercedeses at taxpayers' expense. But the cap was not extended to trucks and vans with a gross vehicle weight -- basically the weight fully loaded -- of 6,000 pounds or more. Back then, that gave businesses the ability to take big tax deductions on vehicles used for construction, farming or hauling. Today, the tax benefits extend to dozens of vehicles that make the weight limit -- from sport utility vehicles like the Cadillac Escalade and BMW X5, which are typically used as family transportation, to pickups like the GMC Sierra and the Chevrolet Silverado. That has made environmentalists livid. ''We think it's outrageous that the government is giving special treatment to these vehicles under the guise that they are used for farm or work purposes,'' said Michelle Robinson, a spokeswoman for the Union of Concerned Scientists, an environmental group. ''Congress needs to step up and close this loophole, especially at a time when we clearly, now more than ever, need to be saving oil and not promoting the biggest gas guzzlers.'' Though there is a special $2,000 tax deduction for purchasers of alternative-fuel and electric-powered vehicles, the qualifying vehicles naturally weigh less than 6,000 pounds, and the benefits therefore are capped. For example, an owner of a small business who takes the maximum deductions on a $20,500 Prius could trim $9,660 from his taxable income. To a taxpayer in the highest bracket, that means a tax saving of $3,500. The Prius, a hybrid that teams a traditional gasoline-powered engine with an electric motor, gets an average of 48 miles per gallon, according to government data. The H2 is so big that General Motors does not have to report its fuel efficiency to the government; drivers say it gets a combined 11 miles per gallon in city and highway driving. The Monroe doctors' accountant is spreading the word about the advantages of buying a behemoth. ''As soon as they passed the law, it dawned on me that this is a real tax break for some people,'' said the accountant, Jim Jenkins of Southfield, Mich. ''For example, a self-employed realtor who buys, say, a Lincoln Navigator and pays $40,000, he puts zero down, he gets zero percent interest and gets a $32,000 tax deduction.'' It is a deal he is considering for himself. ''I drive a Ford Explorer,'' Mr. Jenkins said, a sport utility vehicle not quite big enough to qualify for the enlarged deduction. The vehicles that do, he added, ''are just bigger than anything I want, but with that tax deduction dangling in front of me, it's tempting.'' ------------------------------------------------- _______________________________________________ Futurework mailing list [EMAIL PROTECTED] http://scribe.uwaterloo.ca/mailman/listinfo/futurework
