It's not just a Hummer, it's a tax break If you use the big SUV for business, you could deduct nearly $38,000

Real estate broker John Brightbill stands beside his Hummer H2. He is considering the tax write-off -- "I've been using it partially for business." Real estate broker John Brightbill stands beside his Hummer H2. He is considering the tax write-off -- "I've been using it partially for business." Photo: Gilbert W. Arias/Seattle Post-Intelligencer Photo: Gilbert W. Arias/Seattle Post-Intelligencer Image 1 of / 1 Caption Close It's not just a Hummer, it's a tax break 1 / 1 Back to Gallery

BELLEVUE -- Standing next to his shiny Hummer H2, John Brightbill recounted a perk that a fellow owner noted about driving this immense sport utility vehicle.

"He said some young women wanted to drive around the block with him," said Brightbill, a real estate broker. "That hasn't happened to me yet."

But some people have a more practical reason for laying down $50,000 to $60,000 to buy an H2: a federal tax deduction of nearly $38,000.

"The government is sort of subsidizing people for buying these land yachts," said Henry Pierman, a certified public accountant with Hauser & Associates in Bellevue. "It's one of those odd things that happen. I would say maybe half of the CPAs are aware of this loophole."

In the mid-1980s, he said, Congress tightened rules about how much money can be written off on luxury automobiles used for business -- but excluded vehicles with a gross weight of 6,000 pounds or more, partly an attempt to help farmers afford tractors, large trucks and other heavy equipment.

But many SUVs, including the 6,400-pound H2, fall into that heavyweight category, and now a new class of small-business owners and the self-employed, such as construction company executives, doctors, real estate agents and lawyers, is qualifying for the deduction.

The main requirement, said Pierman, is that people use their SUVs more than 50 percent of the time in their business.

"The soccer mom isn't going to get a write-off for buying one," he said.

The loophole has drawn critics, including Taxpayers for Common Sense, a non-profit group in Washington, D.C.

"You have a litany of these 6,000-pound vehicles that were not originally intended to be deducted," said Aileen Roder, the group's program director. "The original goal was to help family farmers and small businesses who need these vehicles."

Her group estimates that the tax incentive's application to SUVs cost the federal treasury $840 million to $987 million last year.

It's not known just how many buyers of H2s and similar SUVs would qualify for the tax break in Washington state.

But Hummer dealers said that since its debut in July, the H2 has been rolling off their lots in droves and ending up at the homes of professional athletes, doctors and businesspeople.

"For the right people, it's a pretty hefty advantage," said Darrel Landers of Dick Hannah Hummer in Vancouver, referring to the tax incentive.

The state's five dealers in Bellevue, Tacoma, Vancouver, Lynnwood and Spokane have sold more than 450 of the H2s.

"It's as hot as I've ever seen it, and I've been in the business for 40 years," said Brent Barron, a general sales assistant for Osborne McCann Cadillac in Tacoma, which has sold 90 H2s. "I could sell 190 of them if I had them."

"It's outselling any high-end sport utility vehicle," said Bruce Huskinson, product manager for Hummer of Bellevue, which has sold 120.

Several owners and dealers say the H2 is selling so well because it's sporty, stable and more practical for daily use than the larger H1 model. That's not to mention cheaper: The H1 sells for $110,000 to $120,000.

The H2 can come with such high-end features as a built-in telephone and a global positioning satellite system. Dealers also point to its power and climbing ability.

Then there's the tax incentive. Word of the potential savings brought pauses and gasps from some owners. A few joked that they need to chat with their accountants.

Brightbill, the 63-year-old Eastside realty agent, is considering the tax write-off, which he heard about after buying his H2. "I've been using it partially for business," he said.

Brad Sonne, 35, a construction company owner from Mukilteo, said he may qualify for the tax provision, although he bought his H2 for personal use.

"It's just one of the coolest things out there. I don't know how to explain it," he said. "I saw it in an ad in August, and when I saw it, I said, 'That's it.' "

He sees nothing wrong with the tax incentive.

"It's a great deal for construction companies who are buying everyday vehicles for their crew, and where they may have put it off for another year," he said.

"A tax break is a tax break. I don't see anyone complaining about it when it's a tax break for families."

The tax deduction is a combination of rules written in the 1980s and business incentives passed after the terrorist attacks on Sept. 11, 2001.

Pierman, the Bellevue accountant, calculated the $38,000 deduction by taking an H2 costing $55,000 -- and presuming the buyer falls into a 40 percent tax bracket. Many SUV buyers are in this category, he said.

For 2002, a qualified buyer can take an immediate deduction of $24,000.

After that deduction is taken, about $9,300 can be deducted through a bonus depreciation on capital expenses, part of post-Sept. 11 legislation.

In addition, there's the normal depreciation over five years that can be taken on vehicles used for business. The 20 percent deduction in the first year is taken on the amount left after the $24,000 deduction and the bonus depreciation. That, Pierman said, comes to $4,340.

The total comes to $37,640 that can be deducted in the first year. That would reduce the buyer's income tax by about $15,000, he said.

Other vehicles besides the H2 that qualify for the tax break include the Mercedes-Benz M-Class SUV and Chevrolet Suburban and Tahoe, and some pickup trucks and cargo vans, according to Pierman.

He lamented the attention to the tax incentive.

"I think it's actually bad because Congress may close the loophole," he said. "If they see something that the public sees as 'too good of a thing.' You know, subsidizing gas hogs."

There are also complaints about the H2's fuel economy, about 10 miles per gallon. The Seattle-based Transportation Choices Coalition argues that SUVs contribute a high percentage of greenhouse gas emissions because of their high fuel consumption.

"I think a lot of people aren't aware of the impact on human life and the natural environment," said Peter Hurley, executive director. "Our solution is to design them safer and more efficiently."

Bellevue resident Karen Santa, 46, is aware of that sentiment. Since she switched from driving a Mercedes-Benz and bought her H2 in December, activists have left a note and a bumper sticker on the vehicle.

The sticker read: "With every tank full of gas, we're killing Americans." The note read: "And the reason you bought this gas guzzler . . ."

Still, Santa is pleased with the vehicle's handling, appearance and her global positioning satellite system. She's already taken her H2 off road in the snow and has used it to pull her son in a sled on Crystal Mountain.

"It's a fabulous vehicle. You just push a button and say call home and it calls home," she said of the telephone feature.