Plumbers and HVAC contractors could still take deductions for the purchase of large trucks and service vehicles under a bill approved by a U.S. House panel.
But small-business owners not involved in construction or related industries who bought Hummers and Expeditions could no longer claim the purchases on their tax returns.
A bill closing what’s come to be known as the “Hummer tax loophole” was passed Wednesday by the House Ways and Means Committee as part of a $16 billon package to increase America’s use of alternative energies.
The law, long a target of many Democratic critics, was created in 1984 by Congress to cut down on the number of businesses claiming tax deductions for purchasing large luxury sedans. To ensure that companies that truly needed expensive, heavy-duty automobiles could still write them off, the law did not apply to vehicles over 6,000 pounds.
But the rise of high-end and super-size sport-utility vehicles in recent years had many small companies and self-employed workers buying the behemoths on the advice of accountants. They pointed out owners could deduct up to $25,000 of the purchase price on their taxes. Until 2004, the tax break went up to $100,000.
The bill OK’d by the committee preserves the deduction for “legitimate” uses, but taxpayers would have to demonstrate that the heavy vehicle is needed for their businesses. Sponsors say it will be difficult for most companies to prove that Hummers or Cadillac Escalades are necessary for daily work.
Supporters also say the bill will encourage the purchase of smaller, more fuel-efficient cars and trucks.
The Alliance of Automobile Manufacturers, which includes U.S. automakers as well overseas-based companies such as Toyota, opposes eliminating the tax break.
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