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Although
the SUV loophole still exists, it has been severely curtailed. The SUV
loophole is actually the interaction of two tax provisions as described
below. Under this "loophole," certain limitations on the
amount that can be deducted in the year a vehicle is placed in service do
not apply to automobiles rated at more than 6,000 pounds of unloaded gross
vehicle weight or vans and trucks rated at more than 6,000 pounds of gross
vehicle weight. SUVs rated between 6,000 and 14,000 pounds are caught
in the middle, as explained below. Generally,
the cost of business equipment is a capital expenditure, however, you can
elect to treat a portion of the cost, subject to yearly limits, as an
expense in the year the equipment is placed in service. This is
referred to as the "§ 179 expense," and it applies to certain
types of property-including vehicles-used in business. There are
limitations on the amount that can be expensed under § 179, including a
yearly set-dollar limit of $100,000 in 2003 and $102,000 in 2004. The
limit is indexed for inflation so the amounts for 2005 through 2007 have not
yet been determined; in 2008, the set-dollar limit is scheduled to return to
its pre-2003 level of $25,000. Two things are noteworthy: (1) this
yearly set-dollar limit is the aggregate dollar amount of all §
179 property that can be expensed, i.e., this limits the amount that can be
expensed for all § 179 property, such as furniture, fixtures,
equipment, and vehicles; and (2) the set-dollar limit reduced, i.e., you
cannot deduct the full $100,000 for 2003 or $102,000 for 2004, if the
aggregate cost of § 179 property placed in service in that year
exceeds $400,000 in 2003 or $410,000 in 2004. (This limit is indexed
for inflation so the amount for 2005 through 2007 has not yet been
determined; in 2008 this limit is scheduled to return to its pre-2003 level
of $200,000.) For
passenger automobiles rated at 6,000 pounds or less of unloaded gross
vehicle weight and vans and trucks (including minivans and SUVs that are
built on a truck chassis) rated at 6,000 pounds or less of gross vehicle
weight, the amount of the first-year deduction otherwise allowed under §
179 plus other depreciation deductions is subject to a stricter dollar
limitation imposed under § 280F:
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If
a passenger automobile rated at 6,000 pounds or less of unloaded gross
vehicle weight, other than a van or truck (or an electric passenger
vehicle or vehicle retrofitted to run on clean-burning fuel), is placed
in service in 2004, the § 179 expense deduction plus any
depreciation deduction cannot be more than $2,960 for the first tax year
(the placed-in-service year), $4,800 for the second tax year, $2,850 for
the third tax year, or $1,675 for any year thereafter. If the
automobile qualifies for additional first year "bonus"
depreciation, the first-year limit is increased by $7,650 to $10,610.
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If
a van or truck rated at 6,000 pounds or less of gross vehicle weight
(including minivans and SUVs that are built on a truck chassis) is
placed in service in 2004, the § 179 expense deduction plus any
depreciation deduction cannot be more than $3,260 for the first tax year
(the placed-in-service year), $5,300 for the second tax year, $3,150 for
the third tax year, and $1,875 for any year thereafter. If the van
or truck qualifies for additional first year "bonus"
depreciation, the first year limit is increased by $7,650 to $10,910.
Vehicles
rated at higher than the weights set out above are not subject to the §
280F limitation. Instead, these vehicles are subject to the § 279
set-dollar limits of $100,000 for property placed in service in 2003 and
$102,000 for property placed in service in 2004. However, SUVs rated
between 6,000 and 14,000 pounds that are placed in service after October 22,
2004, are subject to a $25,000 limit per SUV. If such SUV was placed
in service in 2004 prior to October 23, 2004, then the higher aggregate
$102,000 limit is applicable. This was the so-called SUV loophole and,
if all the qualifications are met, it allows taxpayers to deduct a portion
of the cost of a heavy vehicle used in business.
There
are a few additional things you should note:
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There
are other rules under § 179 that affect whether the expense can be
deducted, including a limitation based on the taxable income of your
business.
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The
§ 179 and depreciation deductions allowed for vehicles are reduced if
the vehicle is not used exclusively for business.
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