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Hybrid or SUV? Think taxes

first_imgNew tax breaks are available to small-business owners and others who want to help the environment by purchasing fuel-efficient hybrid vehicles. But if those business people really want to save money, bigger tax breaks come with buying the largest gas-guzzling SUVs. The disparity has drawn criticism from the Republican chairman of the Senate’s tax-writing committee and environmentalists. Car dealers and SUV owners who have benefited from the SUV tax incentives say the breaks help spur a key part of the economy – auto-making – and allow small business owners to purchase vehicles that improve their bottom line. Federal tax rules that took effect last month allow a credit of up to $3,150 for anyone buying a hybrid car, with small-business owners getting the same break as everyone else. The credit is the same regardless of tax bracket. However, small-business owners who buy a Hummer, Ford Excursion or other SUV weighing more than 3 tons get a deduction of up to $25,000 if they use the vehicle exclusively for work. The amount they get back from the deduction depends on their tax bracket. AD Quality Auto 360p 720p 1080p Top articles1/5READ MORECasino Insider: Here’s a look at San Manuel’s new high limit rooms, Asian restaurant Those in the 15 percent bracket would get $3,750; those in the 35 percent bracket would get $8,750. The benefits don’t stop there. Once they subtract the $25,000 from the cost of their 3-ton SUV, business owners can deduct the depreciation on the remaining amount. Someone who bought a $60,000 SUV, for example, can claim the remaining $35,000 over six years. No such luck for small-business owners who buy cars weighing less than 3 tons. No matter how much their vehicles cost, they can claim just $15,535 in depreciation over six years and $1,675 each additional year. The deductions for depreciation on trucks and vans weighing less than 3 tons are slightly more generous. Senate Finance Committee Chairman Chuck Grassley, R-Iowa, is working on a bill that would provide new incentives to level the playing field between SUVs and hybrids. “It’s inconsistent for the tax code to encourage business people to buy heavy SUVs and not alternative vehicles,” said Grassley, whose committee has oversight of tax legislation. “As consumer demand for alternative energy products increases, it’s important for the tax code to be consistent.” A Grassley aide declined to describe the legislation in detail, saying more information will be released in coming weeks. Dan Becker, head of the Sierra Club’s global warming program, said the SUV tax break flies in the face of President George W. Bush’s State of the Union call for less reliance on oil. “The president is right that we’re addicted to oil, so we should break the addiction by urging Americans to buy hybrids, not Hummers,” Becker said. The Alliance of Automobile Manufacturers, a trade group made up of the major automakers, declined to comment beyond saying the group is satisfied with current tax policy. Bert Boeckmann, chairman of the California Motor Car Dealers Association, defends the SUV deductions, saying he’s benefited from them as a dealer and small-business owner. Besides owning Galpin Ford in North Hills, he has a ranch near Bly, Ore., where his employees use a Ford Excursion he bought with help from the deduction. “The Excursion’s a perfect vehicle for us because we can pick up eight people from the airport,” Boeckmann said. “You’d rather send one Excursion than two vehicles.” Nashville real estate agent Cindy Jasper said the deduction has boosted her small business as well. She uses two Hummer H2s to take clients to rugged farm and equestrian properties – and to catch customers’ attention. She says the vehicles and her Web site, www.hummerhomes.com, help her stand out from competitors. “It’s just such a great marketing vehicle,” she said. “You have to do something to be a little bit different.” The tax breaks for large SUVs are rooted in long-standing deductions for small business purchases, including trucks and vans for farmers, contractors and others who need heavy vehicles. Trying to jump-start the economy after the terrorist attacks of 9-11, Congress increased the deduction from $25,000 to $100,000 for 2003 and most of 2004. However, along with the small-business owners the increase was aimed at helping, lawyers, doctors and others took advantage, purchasing large SUVs and designating them as business vehicles. Environmentalists were appalled. Treasury Secretary John Snow weighed in as well, writing in a 2004 letter that the Bush administration favored the deduction’s “complete elimination” except when there was a legitimate business need for a large SUV. Grassley and Montana Sen. Max Baucus, the top Democrat on the Finance Committee, backed legislation in late 2004 that shrunk the deduction to $25,000 for SUVs. Congress approved the measure. The Sierra Club has called on the IRS to audit small-business owners who take the SUV deduction, saying there’s no proof they are using the vehicles for business. But the agency said it bases audits on individual returns and the law, not on outside recommendations. It does not keep statistics on the number of people who took the SUV deduction, spokeswoman Nora Butler said. 160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set!last_img

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