Tax break has Hummers rolling off lots

The Arizona Republichttp://www.azcentral.com/news/articles/0101hummer01.html ^ | Jan. 1, 2004 | David J. Cieslak

[vto]

Buy a shiny new Hummer or a fully loaded Cadillac Escalade, then get a hefty tax deduction on the monster vehicle, all compliments of Uncle Sam.

Dozens of wide-eyed customers packed into the Valley's Hummer and Cadillac dealers on New Year's Eve to take advantage of a federal tax windfall allowing them to buy the oversize gas guzzlers and deduct the purchase from their 2003 tax bills.

[vto]

Golly George, your buddies down in Crawford like Hummers and Caddies?

[DefCon]

"Golly George, your buddies down in Crawford like Hummers and Caddies?"
- - -
Not Cadillacs - dummy - they don't break the 6k lb. trigger.
Anyhow, the author of this article mistates that 'people' are buying these things.
The tax break is for 'business', not for 'individuals'.
All of these heavy-weight vehicles are owned by small business.
The only thing that can be called a 'loophole' is the fact that
the H2 is one of, if not the only, 'passenger' vehicle that breaks the 6k lb limit.

[goldstategop]

I just love the H2. If only I had enough space to park one in my driveway... Its HUUGE!

[AZFolks]

The question is over how many years they are allowed to deduct the vehicle. Most of us know but forget a deduction is not a tax credit. Say a 56k vehicle can be depreciated over 7 years and a Hummer is 56k, then one can deduct 8k per year. If you are in the 30% bracket, the government "pays" for $2400. Therefore over the life of the vehicle, the government pays $14,800 of the cost of the $56,000 vehicle. However, when you sell the Hummer or trade it in, you must recapture the money you receive. Assume you sell the vehicle for $25,000, you must pay $7500 in taxes. Therefore the government pays for $7300 of the cost of the vehicle. My point is that this article is very misleading implying the government gets "hosed" for the full price of the vehicle which they do not.

[Glenn]

Please tell me this is a joke.

[John Robertson]

I believe the Escalade qualifies, weightwise. But what the article doesn't say is, this type of deduction, as far as I understand it, is not "just for" cars. It's for the type of acquisition that is normally depreciated over time, but now you can take it all at once. In the case of vehicles, if they make the weight requirement, you can write them off in the year of purchase. But I believe it would apply to any other legit business purchase--small building, servers, whatever.

[backhoe]

Golly George, your buddies down in Crawford like Hummers and Caddies

I noticed that snide remark, too.

All I'll say is this- increased sales and economic activity are good for everyone... more is better than less.

To give you some perspective, I recently bought one of these for $3,500:

...and while I was hunting parts to bring it up to snuff, I chanced by the local Hummer dealer... noticed the sticker price on one was $110,000 and recalled that was what I paid for a large house on deep water, on a private island, in the 1980's here.

Visions of me driving my old house around have haunted me ever since then...

[sopwith]

I hear bill clinton whats a hummer.

[Jim Noble]

Well, the deduction can be frontloaded as a Chapter 179 expense deduction, and this has been true for years.

I don't think there is anything new in the tax code this year about this subject.

The vehicle must be for business use, it must not be a passenger automobile, and it must weigh more than 6000 lb.

[lewislynn]

See your accountant. The new law allows a full deduction of up to 100K in the first year for any vehicle with a GVW of 6000+ lbs.

[AppyPappy]

Why? Is it terrible to let people keep more of their own money?

[snopercod]

Reducing Your Business Taxes With Section 179 Deductions

(2003, 2004, 2005, due to the Jobs and Growth Tax Relief Reconciliation Act of 2003)

(Or: Question:

Oh, No! I underpaid my estimated taxes by $55,000! What can I do now?"

Answer: Buy a Hummer.)

Section 179 deductions are a way that small businesses are allowed to expense, in the current year, business assets that are usually depreciated over many years.

Neglecting half-year conventions and other details, suppose you purchase a business machine with a depreciable life of five years for $10,000. This means, according to straight-line depreciation, that you'd "write off" or "expense" $2,000 of the asset per year for five years. That is how a business owner would recover the cost of the capital asset. Businesses generally aren't allowed to "write off" the cost of a long-lived asset in the year of purchase.

The passage of the "Jobs and Growth Tax Relief Reconciliation Act of 2003" in May of 2003 increased the Section 179 deduction to a whopping $100,000 on qualified assets. (Previously, the deduction was $25,000.)

The definition of Section 179 qualified property has also been expanded to include off-the-shelf software, although Section 179 still doesn't apply to custom-written software. (It was a pain to amortize the cost of silly software programs and keep depreciation schedules for them! Now, off-the-shelf software can also be Section 179'd. For example, publishers who purchased programs, such as PageMaker, PhotoShop, Quark, etc., in 2003 will be able to expense them immediately.)

For those new to business depreciation (and IRS Form 4562), IRS Publication 946 discusses depreciation and Section 179.

For more about the 2003 tax act, see the IRS website:

http://www.irs.gov/businesses/small/article/0,,id=110431,00.html

Much media coverage of the expanded Section 179 deduction is the result of another curious tax loophole which allow vehicles over 6,000 pounds to be treated differently from "regular" passenger vehicles. In particular, before the advent of huge SUV's, weight was considered a sufficient criterion to separate passenger cars from light-duty industrial trucks and work vehicles used by farmers and other businesses.

However, the trend toward bigger vehicles means that many people drive passenger vehicles rated over 6,000 pounds. (We won't get into the complexities of how vehicles are weighed. It's not as simple as you might guess.) And, Section 179 applies fully to these SUVs ("passenger" vehicles are subject to their own rules).

For more about the full deductibility of SUVs in the current year under Section 179 and vehicle deductibility in general, read:

http://www.taxpayer.net/TCS/whitepapers/SUVtaxbreak.htm (best place to start)

http://www.taxpayer.net/TCS/whitepapers/SUVtaxcredit.pdf (titled "A Hummer Of A Tax Break")

http://www.citizen.org/documents/SUV_tax_cmterpt.pdf

http://www.mileagebooks.com/section179.html

http://www.taxnewsletters.com/newsletters/taxPlanning/taxPlanning20031101.html

http://www.brinkersimpson.com/tax%20tips.htm

I provide these links for informational purposes only.

http://www.taxpayer.net/TCS/whitepapers/SUVtaxbreak.htm points out that all SUV's turn out to be fully deductible in the first year, with the exception of the Hummer H1 (an expensive little bugger at $110,000. Only $106,000 is deductible under Section 179 and other allowances).

The Hummer H2 at $50,590 (all 8,600 pounds of it!) is fully deductible, as are all other SUV's. The link lists other SUVs and trucks that qualify.

While some people are excited by this tax loophole, others aren't, because they argue that it encourages people who own businesses, but who don't need or use heavier vehicles in their business, to purchase them to deduct them. The first link estimates that if 100,000 people utilize this loophole, that it will cost the government about $1.5 billion in tax revenue.

As mentioned in my book, "How To Start And Run Your Own Corporation," Section 179 deductions typically flow through for S-corporations and other pass-through entities as a separate line item. This prevents shareholders in several S-corporations from deducting in excess of the maximum allowed under Section 179.

For example, if you own 100% of your own business and take the full $100,000 Section 179 deduction for assets it purchased, you aren't allowed to deduct another $100,000 for assets expensed via Section 179 by another S-corporation in which you’re an investor. You can't exceed the $100,000 maximum. Period.

[Glenn]

Is it terrible to let people keep more of their own money?

Did you read and understand the article? It's a subsidy. Not a tax rollback.

[DefCon]

I have suspicions the freeper who started this thread is a troll.

[orlop9]

OK, were'd that Hummer billboard go to?

[AppyPappy]

It sounds to me like people who buy a Hummer get to keep more of their own money? Is that a problem?

[backhoe]

I have suspicions the freeper who started this thread is a troll

Well, at least he didn't use the "Shrub" or "Jorge" slander for President Bush. But he sure didn't get on my good side with that gratuitous crack he made.

My kind regards to you & yours.

[Glenn]

It sounds to me like people who buy a Hummer get to keep more of their own money? Is that a problem?

You are clueless about what the article is saying. YOU (assuming you pay taxes) are the one paying for this subsidy. Perhaps you don't mind but I sure as hell do.

[lewislynn]

The only thing that can be called a 'loophole' is the fact that the H2 is one of, if not the only, 'passenger' vehicle that breaks the 6k lb limit.

I bought a new pickup for my business for just this reason...

However, my new Volvo XC90 T6 AWD (SUV) also qualifies with a GVW of 6080 lbs.

[Kerberos]

" don't think there is anything new in the tax code this year about this subject."

Accept that the limit is now 100k instead of the previous 24,000k. You can also now take a 50% special deduction instead of the previous 30%. That is for purchases placed in service after May 5th 2003.

And as another poster pointed out, this is for business expense, not personal.