Our favorite questions are always the ones that have us digging through a 200-page Internal Revenue Service document. Thanks! The IRS loophole you’re referring to allows business owners to deduct property — including vehicles used for business — on their taxes, called Section 179. There’s a loophole for certain sport utility vehicles that allows a deduction of up to $25,000. According to a 2006 IRS publication on Section 179, “This applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads or highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight.”

We dug a little on this, and it looks like the deduction was initially created to help operating costs for farmers, giving them a way to write off vehicles purchased for work use and help stimulate the economy. So whether or not it’s ethical to use this loophole to buy a Cadillac Escalade with 22-inch wheels and a DVD rear-entertainment system for “business use” is entirely up to you, but the loophole exists.

The IRS publication also says the deduction can’t be applied to a vehicle if it seats more than nine people, has an open cargo area of at least six feet in interior length (think cargo van), and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.

Rigs that qualify for this deduction include most full-size SUVs, like the Chevrolet Tahoe, Cadillac Escalade, BMW X5 and Toyota Sequoia. The IRS document doesn’t specify whether the SUV has to be truck- or car-based, but the truck-based SUVs are more likely to breach the 6,000-pound mark. You can find gross vehicle weight ratings in the Cars.com Side-by-Side Compare feature, and we’ve set up a comparison of the aforementioned SUVs here.

If you’re seriously interested in this tax write-off, be sure to contact your business’s accountant, local certified public accountant or tax attorney for more details, as they’ll have the most up-to- information available.

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Answered by Joe Bruzek on August 30, 2007 in How Does That Work? | Permalink

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