I'm feeling a little bit feisty today, so I'm going to call 'hype' on this article.

The tax break being referred to is an old one. It has been around for years. It was created to allow businesses to deduct their trucks as business expenses. Not real shocking or unreasonable. The way Congress made sure it was limited to trucks was to put a minimum weight limit on it. Which was a pretty decent way to do it, since a lasting definition of "truck" is pretty elusive when you are trying to include people like "carpenters and their pickup trucks."

Of course, as years rolled by, non-business vehicles kept getting bigger (eg, SUVs). Eventually, they caught up to the 6,000 pound weight limit (yes, THREE TONS).

It is a patent falsehood, however, to suggest that this is some new "special tax break" created by the government (read, "republicans") to benefit their SUV-loving voter base (you know, the mean ol' arctic drillers). It is really an old deduction that SUV's happened to grow into.

The problem is, of course, that you can't just move the weight limit because carpenters still have pickup trucks that weigh less than 3 tons. So if you move it up to avoid the Porshce Cayenne, you also screw small businesspeople. (Though I believe that is what political pressure caused them to do - have to double-check though).

And you can't just call out the Cayenne, because Porsche can name-change faster than you can legislate.

So we have a mighty problem, right? All those mean SUV owners! Free gas for evil soccer moms! Boo! Drive a Prius, bitch!

Baloney. Read the fine print - wanna play this game? You must declare on your tax forms that you use your Porsche Cayenne for legitimate business purposes 100% of the time. Good luck on proving that to your friendly neighborhood tax auditor. How many of you even have a business to use as a front, much less one that provides you with a plausible way to explain thousands of miles of travel?

The example given is completely absured. The writer saw a parrot-green Hummer2 with a sign on the door advertising a dress shop. Which means the author has no idea whether the tax break is being claimed or not, and further means that he has no idea whether it is LEGITIMATE or not. Yes, I suppose the H2 owner might be deducting that percentage of time in which the H2 is being used to ferry dresses. How much time you figure that is? Or, the H2 owner might be deducting personal time driving the H2. In which case he is committing tax fraud.

So, another words, the specter of people snapping up completely tax-deductible Porsches is absurd and false. And if you tried to do it, you would be committing obvious tax fraud. If the author had any integrity, he might try to pull a single example (or aggregate numbers) of Cayenne owners who actually claimed and received the imaginary $31,383 of tax deductions he hypothosizes.

A manipulative and biased article, not worthy of distribution.

And no, I don't own a qualifying SUV.

Jim: Happy Birthday! -- Mike

But seriously -- I mean, SUVs are bad, right? I'd put this tax deduction under "unintended consequences." Like that pickup, what the heck was it, from the early 80s, with the seats in the back, so it could escape import taxes on trucks by pretending to be a car. Even if with this deduction, the intent wasn't to reward SUV owners, and even if those SUV owners who take it are (probably) committing tax fraud, it is highly likely that some appreciable percentage of the American public is committing that fraud. I have somewhere a highly specific number that represents the percent of Americans who are tempted to commit tax fraud each year, along with a dollar amount that it all costs us, but the margin is too small to contain the proof. You'll have to trust me that it's huge, huge!

Anecdata: the local ice cream / ices chain, Uncle Louis G's, has an H2. I still eat their ice cream, though.

Hey, I'll totally give you "SUV's are bad." The problem I have is in purusing the anti-SUV agenda through the use of misleading/questionable "news."

I strongly suspect (but, admittedly, can't prove) that very few people set up fake businesses to shelter the purchase of Porsche Cayennes, hoping that no tax auditor will question a $30,000 deduction posited on 100% vehicular business use.

It would be a hassle to set up, send up a huge red flag, and be amazingly easy to challenge (Uh, Uncle Louis, would you mind explaining why your H2 has 30,000 miles on it after one year, and how those 30,000 miles were used in the course of your business?) I mean, just think of the conditions required to abuse this deduction: purchase of SUV, ownership of small business, willingness to openly commit 5-figure tax fraud in a very visible and provabale manner. Do you really think this is a big issue? And even if you do, what was the point of pretending this is some "new" deduction aimed at SUV owners, rather than honestly outlining the history of the deduction and who it was originally aimed at? Deceptive, in my view.

Or take another angle on your own arguement: I'm sure the charitable contribution deduction isn't intended to reward tax cheats either. But I'm also sure that some appreciable percentage of the American public is using it to commit tax fraud. That doesn't mean we argue that the charitable contributions deduction is some monstrous hoax or rip-off of the American People (much less suggest that giving to charity means you love Osama Bin Laden. I mean, really).

I suspect (but again, can't prove) MANY people claim the maximum "non-cash" charitable deduction line on their tax forms (why, you know that coat I gave to the Salvation Army last winter? Worth a mint!). An easy $249 deduction. $80 in your pocket. A fraud that is utterly unprovable (that level doesn't require documentation) and massive (I bet 95% of all Schedule A's max out this line).

Where are the headlines claiming that the charitable contributions deduction is just one big scam for the wealthy?

Aren't SUVs bad enough on their own merit that we don't have to invent conspiracy theories about them?

Thanks for the Birthday wish, by they way. 37!!! Why did that sound so old when I was young, and become so young now that I'm getting old?

ME-L:

Re-reading my comment above, I want to clarify one point: I am not suggestion that YOU are engaging in deception by posting the article. My "deceptive" comment is aimed at the author of the underlying article. Maybe that was obvious and I'm just feeling paranoid in my old age, but my spleen is venting purely on CNN/Money Magazine, not you . . .

I give up! It's a bad article! You win!

Although I'm waiting to see if David, our Prius-driving tax expert, will weigh in on the topic.

Oh, and I don't feel any spleen on me. No worries.

You are just *saying* I win because it is my birthday, and you know I like to win. If you really loved me, you'd weep and gnash your teeth in frustration.

Actually, I'd like to hear from David too. In particular, I'm curious if he thinks anyone could sneak 100% of the value of an H2 past the IRS as an "advertising expense" by putting a sticker on it. That sounded like a nasty little work-around. If that really would work to get a legit tax deduction, that would make me very, very sad.

And, of course, I'd go buy one.

Jimpy, I have to call you out on this one. This is NOT the "Pirates of the Carribean." It requires REAL knowledge to answer. ;-)

First, the tax-break was NOT around for years, at least not in this form. Section 179 was limited to $10,000 for years, then went up to $17,000, and according to the "2001 Master Tax Guide," was scheduled to be $20,000 for 2000; $24,000 for 2001 and 2002; and $25,000 thereafter. Bush's bill increased Section 179, the amount of depreciation one can legally deduct in the first year of use, up to $100,000.

Second, you can "prove" that you used the vehicle 100% for business by keeping a log (or creating a log regardless of use) while owning a second vehicle.

Third, looking back at original bill, I'm not sure that this was a case of "unintended consequences" or not, because it's usually very difficult to know what was "intended." But I CAN tell you that the consequences were figured out BEFORE PASSAGE, and it passed anyway.

Fourth, I can tell you with certainty that the consequences played out exactly as feared/anticipated.

For the uninitiated, one depreciates over time the value of equipment. When it comes to moving vehicles, the IRS very carefully separates out passenger vehicles from trucks and other vehicles by calling them Listed Property. As listed property, you need to list how much of the time the vehicle was used for business as opposed to personal use. For cars, there was also a depreciation cap, for any given year, on "luxury automobiles," a category (believe it or not) that started UNDER $20,000.

Doing a quick Google search, I discovered several things:

1. The SUV deduction was noticeable and talked about prior to the passage of the bill, so even if it was not intended, it was passed with full knowledge of the loophole (see for example, http://4wheeldrive.about.com/cs/drivingtipssafety/a/aa041603a.htm).

2. Once passed, sites for small business owners shouted out the loophole to any and all. http://www.selfemployedweb.com, for example, has a series of articles on the SUV loophole. The first one starts:

>It used to be that the company car was for executives and the delivery fleet was for hauling products. At tax time, the Internal Revenue Service treated them like the second cousins they are. Luxury cars can be written down a measly couple thousand dollars at a crack, but heavy trucks, expected to go through some wear and tear, can be fully depreciated over five years.

>Then along came a tax curveball in the form of the sport utility vehicle. It's heavy enough to squeeze into the category of a working truck, yet executives don't mind zipping around in one. Vehicles weighing over 6,000 pounds aren't classified as "luxury" for tax purposes, so they can be written off for business use over just five years. This amounts to thousands of dollars in tax savings.

>Tom Cooksey, a commercial real estate broker in Atlanta, was tipped off to this "heavy metal" tax trick by his accountant just as Cooksey was thinking about buying something bigger than his Jeep. "When I found out I could do accelerated depreciation, that really motivated me to go ahead," he says. Now he owns a $41,000 Chevrolet Suburban and is considering buying a second one.

>It wasn't long ago that a Suburban, a hulk at over 7,000 pounds, might be considered a gauche vehicle for a company president. Not anymore. As Cooksey puts it, "For most clients from the CEO down, it's an acceptable vehicle. They say 'Wow!'"

They then added this:

>HEY SMALL-BUSINESS OWNERS: How'd you like to use pretax dollars to buy an SUV or pickup?

>Thanks to the 2003 Tax Act, many small businesses can instantly deduct up to $100,000 worth of new and preowned equipment in the year it's first placed in service ($102,000 for 2004 after adjusting for inflation). The new $100,000 allowance is for tax years beginning in 2003 through 2005. The name of this generous break is the Section 179 depreciation deduction, and it can reduce both your federal income tax and self-employment tax bills. (You may get a state-tax deduction too.) Without it, you'd have to depreciate most business equipment over five to seven years. (Before the 2003 Act, the maximum Section 179 write-off for tax years beginning in 2003 and beyond was a mere $25,000.)

Followed by this:

>SUV Tax Deduction Recent Information
>>>Save up to $35,000 on a new SUV

>The new SUV tax bill quadruples the deduction available on small-business equipment purchases, which include trucks. The catch? You've got to buy a big one.

>By Des Toops

>The SUV loophole just got big enough to drive a Hummer through.

>Among the provisions of the tax package just approved by Congress is an increase in the deduction allowed for small-business equipment purchases, which rises from $25,000 to $100,000. That means real estate agents, lawyers, doctors -- anybody who files a Schedule C or corporate tax return -- can write off the entire cost of virtually any big sport-utility vehicle. The potential tax savings in the top bracket is $35,000.

And this:

>>More SUV Tax Deduction Info...
SUV sales climb on tax loophole

>>By Jim Hopkins, USA TODAY

>>SAN FRANCISCO — A tax loophole big enough to drive a $90,000 sport-utility vehicle through is working magic on SUV sales.
Small-business owners are swamping dealers with orders for Porsche Cayennes, Cadillac Escalades and other pricey SUVs as Congress tries to close the loophole driving such sales.

>>Dealers sold more than 101,000 full-size and luxury SUVs last month — a 51% jump from a year ago in what's usually a slow month, says researcher Power Information Network. Figures aren't kept on the number sold to businesses.

So, Jimpy, to conclude:

1. The SUV loophole was known about prior to passage of the bill.
2. It passed anyway.
3. The sale of SUV's sky-rocketed after passage.

All this, I might add, came after 9/11, after the war in Afghanistan, Iraq, etc.

So yes, the author is absolutely correct that this loophole is highly counter-productive.

I personally would give the title of "Osama Bin Laden Support Fund" to the "Jobs and Growth Tax Relief Reconciliation Act of 2003" rather than the "American Jobs Creation Act of 2004," only because the first one created this mess, and the second one only failed to fix it.

http://discussions.pbs.org/viewtopic.pbs?t=28529