The internal revenue code allows business to deduct the expense of vehicles, but puts restrictions (a cap) on the total amount businesses can deduct. The idea was that dentists and lawyers (those damn lawyers) were buying luxury cars, and then writing off the cost as expense and depreciation deductions. Congress changed the code (26 U.S.C. §280F) to limit deductions taken for vehicle expenses. The code section limits deductions to around $12,000 total spread out over the life of the vehicle. However, the limitation only applies to passenger vehicles. The code goes on to define passenger vehicles (see § 280F (d)(5)) as any vehicle weighing 6,000 pounds or less. Uh oh.
So, if you want to depreciate the entire cost of your vehicle it is not going to happen if you buy a Prius. However, if you choose to buy a tank to deliver flowers in—well then by all means, please depreciate the whole thing. I would love to drive to the courthouse in a Marauder myself. The intent of this exception was to allow farmers and construction workers to depreciate their necessary expenses. The result is that small business owners have a huge incentive to buy gigantic SUVs.
The auto industry knows about the tax loophole and designs most of their SUV’s to be 6,000 pounds or greater. You can even find helpful lists online of cars you can choose from in this weight category. I can image the meeting in Detroit where General Motors executives say, “Why do these hippies want us to make the Navigator smaller? Don’t they realize they will lose their tax benefits? Let’s make a smaller one for people who don’t own a small business and we’ll call it the Aviator!” Most car companies now sell a 6,000+ pound version and a smaller than 6,000 pound version of the same car. The BMW x5 (tank), x3 (not a tank); the Dodge Traverse (tank) Nitro (not a tank); the Lincoln Navigator (tank), the Aviator (not a tank); the Nissan Armada (tank), the Nissan Rogue (not a tank), etc.
California tried to eliminate this tax loophole in 2004 with Assembly Bill 848. The bill failed miserably as noted in the press release here. So, carry on my fellow Californians. Buy solar panels for your home and business. Use tax money to invest in renewable energy. Institute a cash for clunkers program to get those SUVs off the road! Then buy tanks for your business so that you just
call write the whole thing off.