Torags

Are we losing it with the newly signed tax bill? Anybody tracking this..

DC from Cape Cod

Has Bush signed it yet?

pdxjim

from Portland Oregonian this past week:

The days are numbered for a tax loophole big enough to drive a monster truck through.

The tax break allowing small businesses that buy vehicles weighing 6,000 pounds or more to write off as much as $102,000 of the cost as a business expense disappears as soon as President Bush signs the American Jobs Creation Act of 2004. Congress passed the bill, which reduces many corporate taxes, Monday. Bush is expected to sign it within a few days.

Sales managers at local Hummer and Ford dealerships said buyers are trying to seal deals for the heavy sport utility vehicles before the end of the year. But many dealers and buyers appeared Wednesday to be unaware that the break will disappear as soon as Bush signs the tax bill.

After the loophole is plugged, buyers who use their vehicles for business still will get some tax breaks. The surviving breaks won't be as lucrative as the controversial loophole that has spurred many contractors, sole proprietors and professionals to buy heavy, gas-guzzling SUVs such as Hummers, Ford Excursions and Cadillac Escalades. Only the largest SUVs exceed 6,000 pounds.

"On the one hand, it's a great deal for sales," said tax consultant Joseph Anthony of Portland. "But there's been so much angst among the public about these big vehicles that could be written off in the next year, Congress couldn't take the heat on this."

In particular, environmentalists have criticized the tax break, saying it encourages businesses to buy larger vehicles than they need.

Until Bush signs the bill, there is time to take advantage of the current provisions, which allow expensing the entire cost of heavy vehicles up to $102,000 in the first year, as long as they are used 100 percent for business and otherwise fully qualify for expensing.

"I'm working one of those deals as we speak," said Mike Littleman, a sales manager at Landmark Ford, whose salesman was dickering with the buyer of a 2004 Excursion that weighs in at about 6,400 pounds.

"He wants to get the tax break," Littleman said.

The tax break has been a boon for selling and leasing Hummers, too.

"I just leased two of them for business use," said Don Nguyen, sales manager at Dick Hannah Hummer in Vancouver.

The new law would drop the expensing limit to $25,000, but the buyer still would get bonus first-year depreciation.

The bonus 50 percent depreciation was a post-9/11 measure designed to give small businesses tax breaks and incentives to invest in new equipment. The buyer then can take further depreciation under the regular rules. On a $70,000 vehicle, about $52,000 could be written off the first year and the remaining $18,000 would be written off in 2005 and remaining years.

Buyers who wait until next year would lose the bonus depreciation. So the write-off next year would be $25,000 plus $9,000 regular depreciation, for a total of $34,000 the first year, according to RIA, a provider of technology and information to tax professionals.

Psycho

The SUV would need to be "placed into service" before the bill becomes law. So if you're considering using this tax break, get thee to a dealership this weekend.

Blade-MD

If you miss out on this deduction and W wins. I wouldn't be surprised to see something like it reinstated.

PogueMoHone

Not a chance!

Torags

I agree.

"The bonus 50 percent depreciation was a post-9/11 measure designed to give small businesses tax breaks and incentives to invest in new equipment. The buyer then can take further depreciation under the regular rules. On a $70,000 vehicle, about $52,000 could be written off the first year and the remaining $18,000 would be written off in 2005 and remaining years."

Has anything else been changed to qualify. Still 6,000lb GVW?

For all you "loop hole averse" folks:

LEST WE FORGET: Depreciation is tax deferral; Tax credits are a gift.

PogueMoHone

Depreciation is not a tax deferral. Depreciation taken might be recaptured if the vehicle is not held long enough

Depreciation, especially accelerated, is a cash flow generator. Depreciation is an allowable business expense.

Alan Smithee

Fine...but if reinstated it should be opened up to all cars and trucks. Encouraging a professional to buy a Cayenne over a Boxster (or an X5 over a 545i, etc.) because it's a deal that can't be beat does not help our country in any way.

Torags

"Depreciation is not a tax deferral. Depreciation taken might be recaptured if the vehicle is not held long enough"

I should have said accelerated depreciation (over straight line) is a tax deferral. If you write off 100% in the first year on a car (unlike computers), the salvage value if sold is taxable income (could be cap gains).

DC from Cape Cod

I think that if you hold it for 5 years, it is not re-captured.

Also, you can trade the vehicle in and retain the credit...even if you trade the vehicle for a car (according to our accountants - both of them).

Torags

Sounds right to me. I thought the straight line depreciation was 25%/yr(4 yrs) - not 20% (5yrs); I've learned something. thanks DC..

PogueMoHone

Accelerated or not, it's still not a tax deferral. A tax deferral is a tax payable, which is put off to a later date and may be a schedule M1 or M2 item. The deferral depending on it's nature can be temporary or permanent.

Depreciation is an allowable expense which decreases income and therefore taxes, there is no deferral involved. Recapture may be involved if the original circumstances surrounding the deduction change.

DC from Cape Cod

In this case, recapture may be in volved if the PRESENT TAX YEAR circumstances surrounding the past tax year deduction change.

Torags

Thank goodness you clarified that..