While the Obama administration, and other governments around the world are strongly urging and incentivizing smaller, fuel-efficient vehicles, it may be that Congress did not get the memo.
This year the IRS tax code really sweetens the deal for some in business to buy or lease a heavyweight gas guzzler costing over $30,625.
For vehicles used purely for business purposes, it is now possible to write off 100 percent of the vehicle’s cost in the first year.
The Volt is still eligible for the $7,500 federal credit, and the Department of Energy and others are pushing to make it a direct refund at time of sale.
And as if this wasn’t good enough, if depreciation caused a loss it can be used like cash back in the form of a refund. Or, depreciation loss can be used against other wages.
This news came over the weekend from the Wall Street Journal, which likens the offer to a “bonus depreciation” special on vehicles that weigh more than 6,000 pounds. Examples would be a Cadillac Escalade or Nissan Armada but there is a long list of eligible vehicles.
The deal is less generous for cars weighing under 6,000 pounds. Cars that sell for over $15,300 are eligible for first-year depreciation of $11,600 in 2011, but if the vehicle cost more that $30,625 it is eligible for more write-offs in years two through six.
As an example, consider two hypothetical vehicles bought for business use in December 2010. One cost $20,000, the other cost $31,000. For 2010, each gets $11,060 worth of depreciation. For 2011, the more expensive one gets a deduction of $4,900, while the less expensive one gets only $3,200.
“Congress is clearly biased against smaller cars,” said Joe Kristan, a CPA with Roth & Co. in Des Moines to the WSJ.
The rules come from two changes in the law Congress made last year. They apply to vehicles bought after Sept 8, 2010 and before Jan. 1, 2012.
Vehicles that are used for personal use – such as driving from home to work – would not be eligible for the whole write-off.
Other pros and cons for tax itemizers come into play with regard to un-reimbursed expenses such as tolls and parking fees and more.
Whether to buy or lease depends on crunching the numbers for one’s individual situation including the lease terms.
In general, the incentives are better for buying instead of leasing cars weighing less than 6,000 pounds. The opposite is true for vehicles over 6,000 pounds. The deal may not be so good if you plan to lease a sub-6,000 pound car and replace it every two years or so.
“Many factors go into this decision, and you always have to crunch the numbers,” said Daniel Moore, a CPA practicing in Salem, Ohio to the WSJ.
If the vehicle is not used entirely for business, as is customary, a percentage would apply.
Taxpayers intending to take advantage of the new rules should be prepared to document a vehicle as purely used for business. Claiming a vehicle as a 100-percent business use could raise a red flag with the IRS, and taxpayers might be asked whether the vehicle is parked at the business at night, not driven home.
In other news, filed under Mixed Messages, Pike Research reported that more than 1.3 million plug-in EVs will be in corporate and government fleets by 2015.
As it is, the marketing advantages for big gas guzzlers are already clear to companies like Land Rover, which is touting the new law as a potential sales incentive.
After speaking with tax experts, the Wall Street Journal interprets this year’s tax law as a way to “juice certain activities – like car buying – in ways that make a big difference.”
In theory, depreciation is supposed to be reflective of actual depreciation over the usable life of the vehicle.
In fact, no vehicle will be all used up its first year, so this is essentially a stimulus deal to prompt certain business consumers to buy heavy gas guzzlers and not worry about it.
So while in other sectors talk of fleet purchases of hybrid and electric cars and even mandates by the president to increase fuel efficient vehicles are ongoing, U.S. policy clearly has a conflicted agenda.
[Source: Wall Street Journal]
This entry was posted on Monday, May 16th, 2011 at 5:55 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
+2
May 16th, 2011 (6:18 am)Frustrating. However, since the economy needs a boost Washington finds a quick, easy fix. As Jeff draws attention to the subject, hopefully more news articles will result and the public will call their senators and congress persons.
For those who have viewed “Who Killed the Electric Car?” this seems mighty familiar as the Hummer footage of the film showed.
+3
May 16th, 2011 (7:27 am)Just forget all the number crunching programs and have a direct incentive at time of purchase of the $7,500, because for most people, planning for a purchase for the remaining $36,000 or so still is going to take a two year plan of large sacrifices in all other areas of their budgets.
The administration and we would hope congress as well, want electrification to advance.
Using the tax code to do this is draconian,
because as more people are concerned with unknown risk regarding their owing any taxes in the first place, (aka, keeping their jobs), the current method brings in a lack of clarity for planning for most people.
Just make $7,500 available to GM at time of purchase for any American citizen buyer, and drop the ineffective draconian tax-credit-attempt at advancing electric motoring to a million vehicles in the next five to seven years.
+4
May 16th, 2011 (7:33 am)News like this just makes me want to weep!
Seems to me some Members of Congress should just declare themselves Friends of OPEC, and move out of the way for the Volt early adopters to continue the electric lead.
We have similar problems in New Zealand with the Volt being heavily penalized compared to ICE cars, so it seems we have a way to go yet bring the politicians around.
+5
May 16th, 2011 (7:53 am)With all of the money the big oil companies give to the politicians, why is anyone surprised by this?
The heads of the five major oil companies were in Washington DC just last week to defend their own tax breaks, even though they are earning record profits.
I am surprised that they didn’t ask for the Volt’s $7,500 tax break to be removed, as it would be “an unfair advantage” in their eyes………
Everything that is said in that town is just doublespeak!
+2
May 16th, 2011 (7:57 am)This bonus depreciation apparently also works for a business installing Solar PV on the roof. They can depreciate the costs of Solar PV (after rebates) in the 1st year. In fact, it seems you can depreciate 85% of the pre-rebate cost (which is a bonus).
http://www.brightstarsolar.net/2011/01/depreciation-benefits-for-commercial-solar-installations/
The issue with this mainly is that businesses will establish large arrays and then sell the SRECs into states that buy them. This will make SREC rates drop significantly as there will be more SRECs available for sale than needed to buy. This shuts down a home-owner’s ability to sell the “highly touted” SRECs which sold them on buying the system and could impact their ability to pay-back some loans used for the system if they are cash-strapped. Solar vendors in PA continue to sell the idea of making $300 per SREC per year. Selling someone a 5kW rooftop system which generates 7 MW (7 SRECs) a year for a possible $2100 income can wipe that out if businesses do a lot of solar installs and also sell the SRECs.
May 16th, 2011 (8:04 am)I’m sure John boner’s buddies slipped this one in as a handout to their big oil backers. This is why it’s called the Grand Oil Party.
+4
May 16th, 2011 (8:11 am)Big cars are vehicles of choice for the politicians so what do you expect? With politicians it’s all about themselves. That’s why this country is going down the tubes.
+1
May 16th, 2011 (9:39 am)“In other news, filed under Mixed Messages, Pike Research reported that more than 1.3 million plug-in EVs will be in corporate and government fleets by 2015.”
————
If this is true, wouldn’t this more than satisfy Obama’s goal?
+4
May 16th, 2011 (10:15 am)My guess would be that the purpose of the accelerated depreciation was to encourage purchases of work vehicles. Think UPS. It just happens that there are some SUVs that fit into the category of targeted vehicles so drug dealers can use accelerated depreciation for their Escalades. LOL
The fact is that EVs cost a lot less to run. If appropriate, at the end of the day they make more sense from a business standpoint.
+14
May 16th, 2011 (10:26 am)My son has a landscaping business and my brother has a cabinet-making business. For each of them the incentive to buy new vehicles is greatly enhanced by this legislation.
I see this as more “pro-small-business” than “gas-guzzler”. You just cannot haul several thousand pounds of mulch, trees, gravel, cabinets etc. with an economy car.
+1
May 16th, 2011 (10:58 am)Not yet, but soon.
http://www.brightautomotive.com/vehicles
+7
May 16th, 2011 (11:11 am)$36,000-plus sticker price easily covers most Silverado Trucks in stock, and right now there’s about $4,505 in Rebates on those already. Combine that with writing off the whole thing of their tax bill, I can see how this could be a strong incentive for our business customers.
I prefer to sell VOLTs but strong truck sales is one sign of a stronger economy. IMHO.
+2
May 16th, 2011 (11:17 am)This is just another prize example of the crap that rolls out of the U.S. Congress. It never ends! Fuel guzziling hogs don’t have to be made, bought and or used to enhance most businesses. This a two pointed gift for the vehicle makers and the oil industry.
You don’t need dually pick-up trucks with 500 HP engines to performing your lawn, or many other work as has become the believe over the past years. For years we have run the ranch with light weight pick-ups with the last fleet being Ford Rangers with most of them having the 4 cylinder engine. The operating and maintenance cost for the big oversized trucks you see in the commercials ate far to deeply into the profits not to mention the up front cost.
Most work can be done by “Very Light” vehicles if your willing to use some good judgement unless, you like to waste money. The oil industry likes your participation in their profit margin which GM dosen’t mind so very much, you buying their big honkin trucks. Its a handsome reward for stupidity!
May 16th, 2011 (11:35 am)Can you buy a small truck anymore? I think the Chevy S10 turned into the Colorado, but it seems a lot bigger.
(note: you need the HP if you are hauling trailers/boats/etc)
May 16th, 2011 (11:39 am)The Ford Transit Connect EV is available now as well.
http://www.azuredynamics.com/products/transit-connect-electric.htm
+1
May 16th, 2011 (11:40 am)So, if you buy a heavy vehicle with batteries, and power it with your new solar panels, does all the incentive income you’ll rake in mean you now have a job? I think I’ve solved about 10 or 12 problems at once. I RULE. I’m gonna be the new Free Party’s pres candidate for sure. Free as in no cost. To me.
+1
May 16th, 2011 (11:51 am)#9
My sense of it is that it’s just as much or more about generating light truck/SUV sales for GM, Ford and Dodge as it is about helping out small businesses. Say what you will about small cars and Volts, the above are still the bread and butter of the “Big 2 1/2″.
This is nothing new. We bought our last 2 work trucks, a 2004 and a 2006, under the same rules. Maybe they have just extended the sunset date?
The unintended (?) consequence is that business owners do use this rule as cover to buy huge personal SUVs. My wife was an RN, and used to laugh about this being the reason why so many of the doctors’ wives drove Hummers, LOL.
+1
May 16th, 2011 (11:56 am)#14
Alas, too true. The Colorado offers the more advanced DOHC 4 cyl, but it still gets at least 20% worse mileage than my S10. The S10 is just about to top 260K miles, but I guess I’ll just have to rebuild it and keep driving it.
May 16th, 2011 (12:31 pm)Requiring 100% business use for a full tax write-off is an improvement over the earlier rule. Anybody know who pushed this rule ? It sounds like a line item, and my guess is it came from politicians beholden to Detroit, not big oil.
+1
May 16th, 2011 (12:56 pm)It doesn’t say it has to be a US vehicle. I’m sure Toyota is happy about this, being they sell ~250,000 trucks/year in the US.
+1
May 16th, 2011 (1:03 pm)Now you are getting to the point: It’s not the size of your truck, it’s how you use it !
Here are the Chevy Silverado Engine choices:
195 HP – 4.3L V6
302 HP – 4.8L V8
315 HP – 5.3L V8
332 HP – 6.0L V8 Hybrid
403 HP – 6.2L V8
All the gov’t has to do is regulate the ‘number’ of engines produced in a given size/mpg range. NOT the number of trucks sold. So, I agree you are on the right track.
May 16th, 2011 (1:15 pm)Is the tax break to help businesses to buy big trucks to help the oil companies or the auto companies?
If it is to help the auto companies, then they need to learn how to be profitable without selling big trucks and big SUVs.
Clearly this tax break is the wrong move for helping the U.S. to gain energy independence, which should be the priority.
+3
May 16th, 2011 (1:30 pm)The tax break is to help the small businessman who needs their truck to stay in business. The oil companies don’t share in the write-off of the truck’s cost. It is only an indirect consequence that the oil companies benefit by the sale of the gas that powers them. The elimination of oil company subsidies by the fed is what needs to change.
+1
May 16th, 2011 (1:34 pm)All of those things. My guess is that the equation “More Sales = More Jobs” wasn’t lost on anyone either. I just wonder how much “outrage” we’ll see over this subsidy for gas guzzlers! LOL
+2
May 16th, 2011 (1:53 pm)These tax breaks have been in place, in one form or another, for years. In general these have been targeted at small business and farms. Conspiracy theories about big oil are overrated.
+1
May 16th, 2011 (1:53 pm)#23
Amen. +1
May 16th, 2011 (1:56 pm)#24
Not much IMHO. The only people who know about this are the ones with smart CPAs and GM-Volt.com readers IMHO. Under the radar for the most part. +1
+1
May 16th, 2011 (2:18 pm)I believe that Toyota spends quite a bit of money on US campaign contributions, too…Just because they’re not headquartered in the US doesn’t mean they stay out of US politics. Or don’t ask for political favors from the US government.
+1
May 16th, 2011 (2:20 pm)Tax deductions don’t do you much good if you don’t have any income. And the incentives for solar panels don’t bring in more than the cost of the actual panels, so….
+3
May 16th, 2011 (2:44 pm)I don’t like this approach. Its still too close to the CAFE approach. Don’t tell car companies what cars they can or cannot build. Just increase the price of gas. The market will determine what cars are built/sold. Maybe someone who only drives 3 miles/year wants a car that gets 3MPG. Or maybe thay are really rich and don’t care. They should have that choice. However, they should also have to pay more that $3.50 for that gallon of gas.
+1
May 16th, 2011 (2:50 pm)The changes were passed under the Democratic controlled congress before the fall elections.
+3
May 16th, 2011 (3:01 pm)I agree. If you want to reduce gas consumption, approach it directly. Raise the price. That minimizes unintended consequences.
+1
May 16th, 2011 (4:51 pm)Last week we paid 8$ extra gas fee; for the HVAC guy to come out and fix our heat pump. I also understand the need sometimes for heavy duty vehicles for small business. The thing that puzzels me is the people I notice driving these huge turbo diesel trucks to the grocery store, restaurants and local coffee shops. I don’t know if that is their only vehicle or if they just like to be seen in their big bad truck?
May 16th, 2011 (5:12 pm)+1
Feather down the subsidies till it’s gone. Completely shutting it down will shock too much.
May 16th, 2011 (5:18 pm)“The tax break is to help the small businessman who needs their truck to stay in business.”
There is no “needs testings” for this. Regrettably, I know quite a few dentists, lawyers, doctors, etc. who this also applies to. They drive large trucks as a result. They don’t need a large truck, but we are encouraging them to buy one.
May 16th, 2011 (6:16 pm)So basically what the Federal Government is saying is if you start a business we will buy a gass guzzeler for you. This is wrong on so many levels,
Take Care, TED
+1
May 16th, 2011 (6:35 pm)LauraM and kdawg,
I’m not an economist by any stretch… but I don’t like the “tax the price of gas” into the $7.00 range like some have suggested. That seems like a plan that unfairly hits the poor, who already have to buy inexpensive small cars (if they buy new), or they buy used.
I’m not poor, but I’m getting there fast with prices on everything skyrocketing! I am lucky that I only drive 5 miles a day round trip, so if gas did go to $7 bucks, I’m still okay… But, my wife may be getting a job soon that would be a 60-mile-per-day commute… (OUCH!)
If businesses need HD Trucks with 6.2L engines in them to get the job done, then tax vehicles on the size of the engine, or maybe inversely proportional to the MPG Rating… something like that. But it seems unfair to me to “sock it to everyone” with high gas prices/taxes.
And where does that “tax money” go anyway? Probably to bloated federal and state pension plans anyway. THAT is definitely unfair!!
May 16th, 2011 (8:15 pm)The vast majority of the revenue derived from a gasoline tax will not come from the poor. Wealthier people generally use more gasoline than poorer people. As you pointed out, the poor tend to buy smaller cars.
I’m sorry to hear that. I thought that auto sales were making a recovery? Business is picking up again?
The point of the tax isn’t to increase tax revenue, it’s to increase the price of gasoline, so people will use less.
Where we collect our taxes, and where we spend the revenue are two separate decisions. There’s no rule that says a gas tax has to increase overall tax revenue. We could use it to cut the payroll tax which hits the poor disproportionately.
If there is an overall tax revenue increase, then I would suggest that it go to lowering the deficit. The vast majority of federal tax money goes to medicare, medicaid, and defense, so that’s where it would wind up. I also think we should invest more in research and infrastructure. But that’s a separate issue.
May 16th, 2011 (8:24 pm)To me, taxing gas itself seems like the most fair thing to do. Why would you tax something else, so then you can shuffle the money around, and give subsidies to oil companies so people can have cheap gas? Everytime that money shuffles around the pile gets smaller. Just tax the product you are trying to reduce the use of… gas.
(and don’t get me started on the “poor” excuse, which everyone loves to use, and its such a dead horse in my book. I’ve posted on it too many times here to count.)
May 16th, 2011 (8:32 pm)So tell me how purchasing a foreign vehicle helps the US economy.. if that were true all the major other major markets would not have huge tariffs on American cars. No foreign car should be on a list of eligible vehicles… that is giving unfair advantages to foreign companies… they certainly would never give a American company incentives in their country.
And I don not have a problem with spending more for a larger vehicle. If I had the money I would buy a Chevy Tahoe hybrid that gets better mpg than a 4cyl toyoda trd truck. I know people who own these small 4cyl trucks that can’t get over 21 mpg… I also know people who own full size Chevy and Ford v8 trucks that are getting 22 mpg.
And most of all… larger is safer…. safety is no. 1 on my list… that is what is nice about the Volt.. it weighs as much as a full size pick up and gets over 100mpg…. I’m waiting for a larger CUV version of the VOLT… and it will be nice to see a Buick CUV version.
No way should our government dictate what we drive!!!
May 17th, 2011 (1:46 am)Lighten UP, girl! Written in emotional jest, aka, it feels like that’s what’s happening.
See if you can come up w/ creative ways to have <$0 cost. Off the top 'o my head, I can think of three possibilities (devil would be in the details, of course, and is thus outside of the scope of this brief summary). Here's one: especially near the end of the purch incentive tax programs, flipping a high demand car that you've effectively puch'd at a nice discount. I dunno if there are min holding periods that would wipe out this opportunity or not. On the other hand, maybe you can flip more than one. Maybe CV Guy's whole allotment and more. Maybe place a GE-sized order, lol. Maybe flip a vehicle where the gov incentives are a higher %age of the purch price, like a Leaf. Of course, might be easier and more profitable to get in on one of the Chinese IPOs and flip it instead. Ya know, before it dives and goes bk in a week or two.
May 17th, 2011 (2:45 am)kdawg,
I love the Bright Automotive Idea. I’d like to see them succeed but I’m not getting my hopes up. I’m sure GOP are working on ways to kill this vehicle the same way they are trying to kill the Volt. The right wing will never stop their efforts to kill the planet. It’s what they do best.
May 17th, 2011 (2:02 pm)Just add a 2600 pound battery and a tow hitch to the “business use version” of the Volt to qualify for the accelerated depreciation loophole. (from T I’s idea with a little less tongue at the cheek)