October 16 & 21, and November 1, 2004

Thinking About Buying a Heavy Vehicle Like an SUV?

Congress is talking about reducing the limit for first-year write-offs of business equipment, back down to $25,000, where it was before the limit was increased on May 28, 2003, by President Bush's 'Jobs Creation and Economic Growth Reconciliation Act of 2003'.

Known as a 'Section 179 Election', taxpayers currently can elect to deduct up to $100,000 of purchase costs in the year in which business equipment is acquired. Technically it's an 'accelerated depreciation'.

The definition of 'business equipment' subject to the Section 179 election includes vehicles (if used more than 50% for business purpose) that weigh more than 6,000 pounds, or have a carrying capacity or towing limit of 6,000 pounds, or are built on a truck frame.

That qualifies most big SUVs like the Navigator, Yukon or Hummers.

Update: October 21, 2004

Language has now been inserted into a Bill called the American Jobs Creation Act of 2004, which has been passed by both houses of Congress, and will now go to the President for signature. That means a change is about to happen!

The new bill will NOT eliminate the deduction, but it will reduce the maximum to $25,000 (instead of $100,000). $25,000 is still a good deal, because without this provision, you would be limited to $2,960.

The new limits will take effect on the day the President signs the bill into law, which could happen any day now.

By the way, have you ever wondered what a Tax Bill looks like? If you want to take a look at hte American Jobs Creation Act of 2004 - the 1,200 page bill the President will be signing - type into your web browser: Thomas.loc.gov (note: do not put www in front ofthe word Thomas). Then click on 'Committee Reports'. Next find the field labeled 'Report #' and type in 108-755, and click search.

Update: November 1, 2004

The American Jobs Creation Act of 2004 was signed into law by President Bush on Friday, October 22.

The higher, $100,000 limit on Section 179 deductions (which allows you to depreciate business assets in Year One), which were due to drop back to $25,000 next year, are now extended through 2007 at the $100,000 level.

However, for heavy vehicles like large SUVs, purchased for at least 50% business use, the first-year deduction is now capped at $25,000. It had been temporarily raised to $100,000. The first-year deduction for passenger cars (actually, for most vehicles with a loaded weight of less than 6,000 pounds) is limited to $2,960 in the year purchased.

Exception: The $100,000 limit still applies to pick-up trucks over 6,000 pounds, assuming 100% business use. (i.e., for 70% business use, deduction would be capped at $70,000).

Also, taxpayers who purchased qualifying business assets in 2003, BUT did NOT take advantage of this big tax break, for whatever reason, can now go back and change their election, using a Form 1040X, the form used for filing Amended Returns. (Until this law passed, taxpayers could reverse an earlier decision (i.e., change their mind) ONLY IF the IRS agreed to let them.)

READER ALERT: If a new, heavy vehicle is placed into service this year - 2004 - you can ALSO claim a 30% bonus depreciation, in addition to the $25,000. Important Note: Used vehicles are not eligible for the Bonus Depreciation, just new ones.

I know this can be confusing. If you have questions, go to www.HomeBusinessTaxSavings.com, then click on 'Products & Services', then scroll down to 'Special #1'.

There's another 'Tax Tip You Can Bank On.'

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