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Federal bill reduces tax loophole on SUVs

November 23, 2010
Business deductions for an SUV purchase would be reduced from $100,000 to $25,000, under a bill moving through the U.S. Senate. The bill would rewrite a part of the tax code in order to help ailing manufacturers boost spending and add jobs. The Senate Finance Committee voted this month to grant a 3 percent, across-the-board tax break to manufacturers, seeking to buttress a key sector of the economy amid concerns of job losses. Lawmakers want manufacturers to use the tax savings to reinvest in U.S. operations and add jobs. But the tax bill includes scores of other provisions aimed at lowering the overall cost of the legislation. It reduces the so-called SUV tax loophole, which enables small businesses to write off up to $100,000 of the cost of an SUV that qualifies as business equipment. The bill redefines which vehicles qualify as business equipment and limits the deduction for qualifying vehicles to $25,000-the threshold that existed until the latest Bush administration tax cuts earlier this year. At $100,000, small businesses could write off the cost of virtually any luxury truck or SUV in the first year of purchase. But automakers see the reduced provision as a downside to a bill that otherwise is a boon to manufacturers. They said it would hurt small businesses who need the SUVs and trucks that qualify. "They've isolated one group of taxpayers and taken away a legitimate deduction," said General Motors spokesman Chris Preuss. The auto industry wants the law changed so that all vehicles, not just the 6,000-pound SUVs and pickups that meet the Internal Revenue Service definition of business equipment, would be eligible for a full $100,000 deduction. The original $25,000 break was created to help farmers purchase light trucks and tractors without having to pay a tax assessed on other expensive vehicles. Keith Ashdown of Taxpayers for Common Sense said that the deduction is "one of the biggest giveaways in the tax code." "While this hummer of a tax break needs to be run over and killed, shrinking it is a good first step," Ashdown said.