Serves the Commercial Small Fleet Market of 10 – 50 Vehicles

"What's the over/under?"

March 2005

Remember the so-called $100,000 luxury SUV tax loophole? It’s been closed. Sport utility vehicles placed in service after Oct. 22, 2004 with a GVWR (gross vehicle weight rating) over 6,000 lbs are now limited to a business-use first year deduction of $25,000. The hoopla shouldn’t overshadow the fact that the $100,000 first-year deduction is still in place for any other work truck over 6,000 lbs. There are a lot of vehicles in that category. And it may have some beneficial tax consequences for your business. Let’s say your business is making a hefty profit this year. You need to acquire work vehicles, but you also want to lessen your tax burden. If you were thinking about a higher-priced SUV you might now consider one of those new pickup models with a roomier, more SUV-like interior, such as a Dodge Ram, Nissan Titan or Chevy Silverado with a Crew or King Cab. All have GVWRs over 6,000 lbs. However, the most luxurious and pricey of the crossover pickups—the Lincoln Mark LT, Cadillac Escalade EXT and Hummer H2 SUT—don’t qualify. IRS tax rules require an open cargo area of six feet or over in length. Think those truck beds will grow a few inches in years to come? I wonder. Remember, the $25,000 first-year write off for SUVs over 6,000 lbs is still a pretty darn good deal. To get a hard dollar figure on potential tax savings, I ran some numbers on a Web-based program called the Vehicle-Opt-E-Mizer at www.empowerinc.com. This program will figure out the tax implications of any business-vehicle purchase six ways to Sunday. (Actually, it does much more. It’ll take any vehicle on the market and compare expenditures on a lease, buy or reimburse program from both a financial and a tax standpoint. You’ll find more on this program next issue.)I configured a Lexus RX330 and a BMW X5 at total purchase price of $40,000. Both are fine vehicles. But the Lexus weighs in at 5245 lbs GVWR while the BMW tips the scales at 6,008 lbs. On the X5, you’re able to write off $28,480 in first year depreciation and $39,393 on a four-year loan, merely because it’s 763 lbs heftier than the RX330. The Lexus is stuck at only $2,960 first-year write off under IRS limits and $12,285 total for four years. Obviously, many other factors weigh into your vehicle purchase decision. (Remember too that these are projected tax estimates for next year.) But from a purely tax standpoint, the BMW will save you a whopping $27,108 in tax liability over four years. Finally, let’s look at a few medium-size pickups, a segment that has beefed up in recent years. The new Nissan Frontier and Toyota Tacoma, in any configuration, fall just under the desired GVWR. But the new 2005 Dodge Dakota gained just enough to weigh in at 6,010 lbs. Running the numbers, you’ll see a total tax savings of $15,035 over four years by purchasing the Dakota over the Frontier. If you’re buying 10 for your fleet, well, you do the math.Any football fan asks “What’s the over/under?” before plunking down a bet on his favorite team in Vegas. When it comes to the tax implications when purchasing work trucks, the same question should be asked.
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