Is There an SUV Deduction?

The Sport Utility Vehicle (SUV) deduction was put into place in the mid 20th century to help farmers who used the vehicles for business purposes. When the luxury SUV hit the market, this deduction became a way for any self-employed business owners to write off their large vehicle purchases as business expenses. The SUV deduction was modified in 2004 to make it slightly less beneficial for those seeking to buy large vehicles for non-farming purposes.

When the SUV deduction loophole was first discovered, small business owners were able to write off nearly the entire purchase of a luxury SUV over the course of five years. At the time, any business owner who purchased a vehicle over 6,000 lbs (2,721 kg) could write off up to $100,000 US Dollar (USD) of the purchase. The code that was initially intended just for farmers to purchase vehicles for hauling was being used for high income earners to write off gas guzzling luxury SUVs.

By 2004, the Internal Revenue Service (IRS) had caught on to the loophole and began closing it, although many would argue it is still very much open. The $100,000 USD ceiling was adjusted down to $25,000 USD and the vehicle must be driven for business more than 50% of the time. The SUV deduction is claimed under section 179 Business Expenses for those who file a Schedule C as a business or corporation. The vehicle must be a four wheeled vehicle intended to carry passengers that is between 6,000 and 14,000 lbs (2,721 and 6,350 kg).

The SUV deduction must be taken as a percentage of the business driving. For example, if $20,000 USD was amount paid for the vehicle in one year, and it was used 70% of the time for business, the 179 deduction would be $14,000 USD. Any time that business usage falls below 50%, the vehicle can no longer be claimed as a business expense.

The $25,000 USD deduction must be taken in the first year of purchase, but depreciation expenses can be taken over five years. For example, an SUV is used 100% for business purposes and the original cost was $40,000 USD. In the first year, $25,000 can be written off between depreciation and initial expense. For the following 4 years, the remaining $15,000 can be written off as depreciation expenses. If the vehicle is not used for at least 50% business purposes in the first year of purchase, it can not be claimed at all.

This loophole, combined with the fact that SUVs are not subject to the 5% luxury tax on high priced vehicles, makes them an attractive prospect to many business owners. Environmental groups argue that this tax break encourages large vehicle purchases that in turn create excess emissions and fossil fuel use. Many who are opposed to the SUV deduction believe it should be replaced with a reward for small vehicle or hybrid purchases.