- The Washington Times - Monday, January 13, 2003

Dr. Mark Sherrard just bought a new Chevy Suburban for about the cost of a two-door Saturn.
How did he do it?
His accountant told the Montrose, Mich., family practitioner about a little-known yet increasingly popular tax loophole that allows buyers of sport utility vehicles and pickup trucks to deduct up to $25,000 in the first year of ownership if the vehicle is used for work.
About 100,000 owners of the 3.6 million large SUVs sold last year claimed the deduction, which will reduce the government's tax take by roughly $1 billion, said Taxpayers for Common Sense, a Washington watchdog group against government waste.
The number is likely to surge if President Bush's economic-stimulus plan, which would triple the immediate deduction amount, becomes law.
"I've always needed a large SUV for my work in a semirural community and for my large family, which includes six children," Dr. Sherrard said. "This write-off helped me get a new vehicle quicker."
In total, he was able to deduct $30,000, said Jim Jenkins, the physician's accountant, who has been advising the write-off to all his clients. The vehicle cost $45,000.
Dr. Sherrard was able to write off 67 percent of the price from the $25,000 immediate deduction, combined with the depreciation value offered for a five-year period, Mr. Jenkins said.
"It's a significant advantage for small, self-employed owners who are looking at upgrading their equipment, because the deduction is immediate," said Mr. Jenkins, president of a Southfield, Mich., accounting firm.
The tax break was offered by Congress in 1978 as a way to help business owners and farmers upgrade equipment and heavy machinery.
Buyers of SUVs weighing more than 6,000 pounds get an automatic $25,000 deduction in the first year of vehicle ownership, under section 179 of the tax code. Then, for the following five years, owners are able to further deduct the price through a quicker depreciation value of the vehicle for a set 20 percent.
"Basically, you get a $25,000 discount just driving the vehicle out of the showroom, and then additional deductions when you factor in the accelerated depreciation schedule," Mr. Jenkins said.
For example, an eligible buyer of a 2003 Hummer H2 could deduct $34,912 of the $48,800 base price in the vehicle's first year by using these breaks, he said.
About a dozen of Mr. Jenkins' clients have bought large SUVs in the past six months, with 20 more looking to reduce end-of-the-year bills.
"The use has to be pertinent to the owner, but it's really catching on as a great deal, especially with my small-business clients," he said.
The range of corporations writing off large SUVs has expanded since 1996, when Congress increased the deduction rates of the initiative, starting at $17,500, to $25,000 for 2003.
James Harrington, who plans to upgrade his company car, said he doesn't need a large SUV. But now he is planning to buy a large SUV to capitalize on the write-off.
"The whole tax write-off worked out extremely well, because it was hard taking clients on site tours in my wife's smaller Ford Explorer," said Mr. Harrington, who works with Signatures Associates, a Southfield real estate brokerage firm.
Mr. Harrington is now looking to buy a new Lincoln Navigator, Land Rover, Range Rover or Cadillac Escalade next month costing between $52,000 and $70,000. He expects to deduct up to $32,000 from the retail price.
Environmental groups say the tax break's popularity is hurting state government efforts to lower carbon dioxide emissions from automobiles, particularly SUVs.
"This tax loophole is something that the environmental community has just noticed, but it sends the wrong message to the business world of rewarding people for polluting the environment," said Mark Hirsch, director of the economic program for Friends of the Earth, an environmental organization.
Aileen Roder, program director for Taxpayers for Common Sense, predicted that the expected growth in the tax break would mean more taxes for the U.S. public.
"When this initiative first started, there wasn't this litany of large SUVs like there are now that fit into this classification, and the IRS isn't keeping count of how this is affecting the public," Ms. Roder said.
The Internal Revenue Service does not track the number of people using the SUV tax break or what it has cost the government, a spokes-man for the agency said.
"It's really now become a way for car dealers to make end-of-the-year sales off these gas guzzlers and have corporate executives expense luxury SUVs," Ms. Roder added.
But Jack Faris, president of the National Federation of Independent Business, a small-business advocacy group, said the tax breaks are fueling the economy by making cash breaks available to small-business owners in the first year.
"Profit is an ambitious and vague term for businesses, but cash is real and owners can use those tax breaks to update their machinery, which includes their cars, and prosper," Mr. Faris said.

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