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Unpacking the myth of the “millionaire SUV tax loophole.”
Taking a Section 179 tax deduction for the cost of a luxury SUV is being widely encouraged by finance influencers on social media. We unpack the myth of the “millionaire SUV tax loophole” and look at why so many doctors and business owners are considering buying new cars before the end of the year.
We provide annual warnings on various tax plans that are marketed to affluent physicians and business owners at the end of every year. In some cases, the plan is overtly abusive and fraudulent and will result in penalty to the taxpayer regardless of who implements it. In other cases, the strategy is legitimate and actually based on the tax code, but may be abusive in the way it is implemented by a particular promoter.
On tax issues, I use two sources, the I.R.S, itself and experienced CPAs and tax lawyers. In this case, I turned to CPA Aarti Kapadia, a Scottsdale Arizona CPA with 20 years of corporate and private experience that works with medical practices and business owners, many of whom have inquired about and implemented this strategy as part of their larger tax planning. Essentially, consumers are being told by many sources, including a number of high-profile social media accounts, is the following:
Why do rich people all drive luxury SUVs? Because they write them off! They get it for their business and get to drive Escalades, Land Cruisers, Range Rovers and G-Wagons. And this year you can deduct 100%! Here’s a list of the cars that qualify, go get one!
Sound too good to be true? Here are a few surprising facts:
If that was you need to know, you’d be on your way down to your favorite dealership right now. But as always, there’s fine print you need to be aware to do this right.
Bluntly, you can’t just buy a car for yourself or your spouse and write the entire thing off this year without 50%+ qualifying business usage.
Here’s some of the important fine detail Aarti shared with me, and why I wouldn’t touch this strategy without the help of an informed CPA.
“Business owners can deduct ordinary and necessary expenses incurred on vehicles used for trade or business using the actual cost method or the standard mileage method”, which she explained as follows:
The actual cost method allows for deductions on depreciation, registration fees, licenses, gas, insurance, oil, repairs, maintenance, etc.
If the standard mileage method is used, the business owner gets to deduct 58.5 cents a mile for the first half of 2022, and 62.5 cents a mile for the second half of 2022.
She also cautioned that, “Proper recordkeeping is critical to substantiate the deductions claimed. A daily log showing business purpose, beginning, and ending odometer readings is important. Business owners should also have the odometer reading at the start and the end of the year recorded to calculate personal vs. business use miles. There are several apps available to help ease this recordkeeping burden including MileIQ, TripLog, MileNote, Falcon etc.”.
This is not tax advice, consult with a tax professional about your specific facts.
Ike Devji, JD, has practiced law exclusively in the areas of asset protection, risk management and wealth preservation for the last 16 years.