Yes, Size Matters - automobile taxation loopholes - Brief Article

Kiplinger's Personal Finance Magazine, Jan, 2000 by KEVIN McCORMALLY

Q&A | A TAX LOOPHOLE that measures savings by the pound Is big enough to drive a truck through

I'm self-employed and have been told that if I buy a new sport utility vehicle that weighs more than 6,000 pounds, I can immediately deduct $19,000 of the cost and depreciate the rest faster than allowed under the regular rules for business vehicles. Can this possibly be true? -- EDWARD RUPP, Santa Rosa Beach, Fla.

Yep. The so-called luxury-car rules, which put the brakes on write-offs for business cars that cost more than about $16,000, don't apply to vehicles that weigh more than 6,000 pounds. For cars, that's 6,000 pounds empty. But for SUVs and minivans, it's the maximum weight of the fully loaded vehicle. Plenty of SUVs break the 6,000-pound barrier when passenger and cargo-hauling capabilities are added to the curb weight.

Dodging the luxury-car rules means your new wheels can qualify for "expensing," a provision that allows you to deduct a chunk of business costs right away that would otherwise be depreciated over several years. The limit was $19,000 in 1999; it's $20,000 for cars put into service in 2000. A $20,000 write-off would save $6,200 if you're in the 31% bracket. You could also claim a first-year depreciation deduction for 20% of the remaining cost of the SUV. (Since these deductions cut your business income, they'll save on social security as well as income taxes.)

Buying a heavyweight also lets you dodge the luxury tax that, for 2000, costs 5% of the portion of a vehicle's cost that exceeds $38,000. -- KEVIN McCORMALLY

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