Loophole fueling luxury SUV sales
By Jonathan Weisman
Washington Post
WASHINGTON — When Congress this year decided to allow small-business owners, doctors, lawyers and real estate sales people to deduct up to $100,000 from their taxable income for the purchase of a luxury SUV, Texas car-dealership magnate Jerry Reynolds could hardly believe his good fortune.
He took to the radio to spread the news, drafted a treatise for the Internet, and recently, the man known around Dallas simply as "the car guy" began advertising in the Dallas Morning News.
"It's a loophole," the ad proclaims, "and this weekend, we can show you how to make that loophole big enough to drive a fleet of trucks and sport utility vehicles through it!"
The "SUV loophole" once seemed to be just a quirk in the tax code — deplored by environmental activists but ignored by most everyone else. Now it is shaping up to be a marketing bonanza for financial planners, accountants and auto dealers eager to snap up commissions and drive up sales of heavy vehicles, ranging from workhorse Ford F-250 pickup trucks to elite Hummer H2s, BMW X5s and Mercedes-Benz ML55s.
"It's really been an eye-opener for people," Reynolds said. "And it's been fun, I've got to tell you."
A similar tax break, in fact, is longstanding, although more limited. Since 1997, anyone deemed to be a small-business owner for tax purposes could write off some amount of equipment purchases each year — up to $18,000 worth that first year, up to $25,000 in 2003.
Since 1984, the Internal Revenue Service, thinking more about Chevy Silverado pickups than Cadillac Escalades, has considered vehicles that weigh more than 6,000 pounds to be deductible business equipment.
When lawmakers began writing this year's $350 billion tax cut plan, they looked for ways to help the economy by encouraging small businesses to invest in new equipment, which could include computers, rotary saws or photocopiers.
Congress raised the maximum annual value of the deduction to $100,000, through 2005. At the time, environmentalists implored tax writers to disqualify SUVs, but lawmakers declined.
With the top business tax rate at 35 percent, Washington effectively cut $18,900 from the price of a $54,000 Escalade, bringing its cost more in line with an Oldsmobile Aurora sedan.
The windfall is starting to get notice.
"Buy Yourself an SUV for Christmas," encourages RIA, a New York-based tax information firm.
"Bigger Depreciation/Expensing Deductions for Autos, Trucks, SUVs and Vans," advises a newsletter from Dallas accountant Barry N. Finkelstein.
"Write-Off 100 Percent of Your New SUV? Yes," blares a flier from Dugan & Lopatka, an accounting firm in the Chicago suburb of Wheaton, Ill.
After the Auto Spies Web site picked up the Dugan & Lopatka flier, the firm was so deluged by phone calls that the flood almost shut down its switchboard, said Dave Massoth, a Dugan & Lopatka accountant.
The tax break hasn't yet made a noticeable difference in sales of large trucks and SUVs, which have become increasingly popular anyway, said Haig Stoddard, industry analysis manager for Ward's Auto World.
But, he said, "if there was going to be an increase I think it would happen more in November and December," when tax-conscious buyers would be rushing to claim the deduction on their 2003 tax returns.
A true surge in sales may not be necessary to have an impact. Manufacturers make more money on a big truck or SUV than on other vehicles, said George Peterson, president of AutoPacific Inc., an auto industry consultant in California. An SUV with a sticker price of $50,000 might yield a profit of $20,000 or more.
To get the full write-off, the vehicle is supposed to be used full time for business purposes.
As long as it is used more than half the time for business purposes, its owner can deduct some of its purchase price — say, 75 percent for a Chevy Suburban used 75 percent of the time for business.
"For the rest of us mere mortals, it's just something else to be annoyed at," said Ric Edelman, chairman of Edelman Financial Services in Fairfax, Va.
