A big SUV has tax benefits -- for now

Question: SUVs are receiving attention lately by the tax legislators. I understand the attention relates to tax loopholes for SUVs and legislation trying to "sew up" these holes. What is the story with this, and am I too late to take advantage of it? With gas prices being what they are, I'm not sure I'm interested in these large vehicles, but maybe the tax deductions will make SUVs worth it.

Answer: Many years ago tax laws put an end to fast write-offs for "luxury" vehicles used in business.

Maximum annual depreciation deductions or tax-write-offs were established but were limited to "passenger automobiles."

A vehicle is a passenger automobile if it is a car that is rated at 6,000 pounds unloaded gross vehicle weight or less, or a light truck or van (including SUVs) that is rated at 6,000 pounds gross (loaded) vehicle weight or less.

Heavy SUVs, those with a gross (loaded) vehicle weight rating of more than 6,000 pounds, are not considered "passenger automobiles" and thus not subject to limited annual depreciation deductions.

Because they fall outside this definition, these SUVs can be expensed under a rapid tax write-off under Section 179 of the Internal Revenue Code. Section 179 has been recently touched by tax legislation to allow up to $102,000 (2004's amount) per year in tax write-offs of certain business equipment and furniture.

If an SUV is used solely for business, then its cost can be deducted in the acquisition year, up to $102,000. Even if there is some personal use, the Section 179 write-off is generous.

If you purchased a $55,000 SUV and used it 100% for business, then the entire cost can be expensed in the first year. This can be contrasted with a vehicle that does not have more than a 6,000-pound gross vehicle weight rating. Only $2,960 can be written off in the first year.

If you leased a $55,000 SUV and used it 100% for business, the entire annual lease payments can be deducted as they are paid. This can be contrasted with leasing a vehicle that does not have more than a 6,000-pound gross vehicle weight rating. Lessees of these lighter vehicles can deduct lease payments but are subject to an income inclusion or add-back to income, which is based on a table amount determined by the vehicle cost and year in which the lease commences.

The faster tax write-offs for SUVs might come to an end with pending tax bills, under different Senate and House versions. There are two Senate bills that passed in May that contain a provision to limit Section 179 expensing of SUVs to $25,000. The House bill, as of early June, had yet to pass. There still might be time to take advantage of the SUV write-off if the tax law changes apply to future purchases, or if it grandfathers SUVs placed in service before the enactment date, so consider all the factors and make your decision.

Question: Our practice is having a dinner and silent auction to benefit the family of an employee who recently died. Will the funds collected be tax-deductible to the donors?

Answer: The difference between the bid price of the auction items or the dinner price and the fair market value of the services or product received by the donor would be tax deductible -- but only if a qualifying entity receives the benefits. Benefits that inure to an individual would not qualify. The beneficiaries must be public charities, or public or private foundations that have been accepted by the IRS as such.