It was a well-known deduction added to the U.S. Federal Tax Code back when President George W. Bush was still in the White House, and one which even earned itself a mention in Chris Paine’s seminal documentary Who Killed The Electric Car?
It allowed businesses and sole traders the ability to write-off the cost of purchasing vehicles over 6,000 pounds against their annual tax bill to the tune of more than $500,000 per year, even if the vehicle was only ever driven by one person.
Last year that tax credit was was cut from $500,000 to just $25,000 by the current administration — we presume in the interests of fiscal responsibility and environmentalism — but as our friends over at GreenCarReports note, the recent budget bill signed into law earlier this month by President Obama has not only restored the previous $500,000 “gas guzzler tax deduction” for next year, but has cut all tax credits for hydrogen fuel cell vehicles.
Previous Federal tax credits for electric vehicle purchases, electric car charging stations and compressed natural gas refuelling stations remain.
Originally added to the U.S. Federal Tax Code by the previous administration, the particular Federal Tax Code in question — Section 179 — allowed businesses to deduct the cost of large capital purchases as a business expense rather than requiring them to amortize the costs over a number of years. Designed to help farmers and other businesses like construction companies buy heavy plant machinery, a loophole in the law made it possible for any vehicle over 6,000 pounds in weight to qualify for the deduction.
With many full-size pickup trucks and SUVs topping the scales at over 6,000 pounds — including the no-longer sold full-size Hummer SUV — many small businesses and sole traders were able to essentially buy a brand-new, low-mpg vehicle for business purposes, writing off the capital expenditure against their business taxes.
Last year, increasing gas prices and the lower $25,000 maximum deductible under Section 179 more than certainly put many small business off buying a gas-guzzling SUV or pickup truck.
But now the maximum deductible is back to $500,000 — and gas is heading back under $3 a gallon in some places — we’re sure there will be a marked increase in new full-size pickup and SUV sales. It’s worth noting too that since many full-size pickups are qualified as ‘heavy duty’ vehicles, they do not have to follow the same tough EPA regulations as ‘light duty’ and passenger vehicles.
As to hydrogen fuel cell vehicles? With all incentives gone, Toyota, Hyundai and Honda — all of which are backing hydrogen as their preferred zero emissions fuel of the future — may be forced to rethink their sales and leasing plans for the U.S.
We’re not financial advisors. And we’re not tax advisors. Nothing in this article should be taken as tax advice, and you should always consult a licensed tax consultant before making any purchase decisions.
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