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Big
Tax Breaks for SUVs
How
savvy are you on the tax laws? Well you may want to
be if you own an SUV. Because of a peculiarity in our
federal tax law, business owners are allowed to depreciate
SUVs and pickups more quickly than cars. And these tax
deductions can effectively slash the cost of a new SUV.
This
deduction (which has been around for nearly two decades)
stems from the longstanding classification of SUVs as
"light trucks" rather than cars. So a tax
break originally intended to help farmers buy pickup
trucks is now helping business owners purchase popular
suburban passenger vehicles.
For
years, federal law allowed business owners to depreciate
cars and trucks just like any other kind of equipment,
letting owners depreciate bigger chunks in the early
years and the full value over five years. But in 1984,
the government-concerned that too many people were claiming
the family car as a business expense-sharply limited
car depreciation. However, those limits didn't apply
to light trucks.
Here's
how it works: the law gives people who qualify an immediate
deduction of as much as $25,000 off the price of an
SUV. Plus, until 2004, there's a bonus deduction of
30 percent of the rest of the cost of the vehicle. And
both these deductions are in addition to the regular
five-year depreciation that would apply to light trucks
bought as business transportation. The catch? In order
to get all these tax breaks, you have to buy a truck
that weighs over 6,000 pounds. That means the Chevy
Suburban makes it, but the Chevy Blazer does not.
All
of this adds up to a significant reduction in the total
costs of these types of vehicles. For example, Ford's
Land Rover Range Rover has a list price of $71,865.
The combined tax breaks cut $21,560 off the price over
the course of five years (assuming a tax rate of 30
percent). That means the effective price of the vehicle
after depreciation is $50,305.
This
deduction (which has become increasingly more popular
with the rising popularity of SUVs), does not come without
controversy. SUVs and pickup trucks are typically far
less fuel-efficient than passenger cars. That discrepancy
and the debate over automotive greenhouse gas emissions
have become increasingly hot political issues, especially
since light trucks now account for about half of the
total US new-vehicle market.
But
despite critics' concerns, the tax deduction for fuel-thirsty
light trucks is larger than existing tax breaks for
fuel-efficient cars. For example, owners of Honda's
hybrid gas/electric car get only a $2,000 tax deduction.
(Proposals to boost the hybrid tax break were part of
a Senate energy bill that stalled in 2002.)
For
now, however, the light-truck tax break remains on the
books. So talk to your accountant to see if you qualify,
and take advantage of Uncle Sam's (rare) generosity.
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