Worried about the impact your gas-guzzlingSUV is having on the environment?Concerned about the capitalgains tax you might incur if you sellyour home? Thanks to the increasing popularity of along-standing loophole and expanded tax breaks fromthe IRS, owners of certain SUVs, as well as manyhomeowners, may not be faced with those problems.
A quirk in the federal tax law is actually more generousto owners of certain SUVs than to those whodrive cars. The reason, according to a report, is due to the classification of SUVs aslight trucks rather than cars. As such, a long-standingtax break that was partly intended to help farmerspurchase pickup trucks is now helping business ownerswhen it comes to depreciation of their SUVs.
The law gives business owners who qualify animmediate deduction off the price of an SUV. Thesedeductions are in addition to the regular 5-year depreciationthat would apply to light trucks purchased forbusiness transportation.
The key here is that in order to qualify for this taxloophole, the SUV must weigh in excess of 6000pounds. For example, the Chevrolet Suburban quali-fies, while the smaller Chevrolet Blazer does not. Still,for those who qualify, the deductions can slash thecost of a new SUV considerably.
For example, a Land Rover Range Rover carriesa manufacturer's suggested retail price tag of$71,865, according to the article. However, the combinedtax breaks help shave $21,560 off the price ofthe SUV. In effect, the price after depreciation is$50,305. Similarly, the Cadillac Escalade retails for$53,995. However, tax breaks of $16,199 drop theeffective price to $37,796. And with light trucks nowaccounting for approximately half of new vehiclesales in the United States, the potential market forthe deduction is considerable.
Tax Breaks for Home Sellers
New rules from the US Treasury Department areallowing more homeowners to avoid paying capitalgains tax when selling their homes. In part, the newrules will enable more individuals to reduce or eliminatethe taxes they pay on profits received when theysell their homes, even if they've owned the home forless than 2 years. But the new rules go even further.
The rule change will reduce or even eliminatetaxes for people who sell their homes due to situationsinvolving death or divorce. In recognition of the currenteconomic climate, the new rules will also coverindividuals who have lost their jobs or in some casesare no longer able to afford their mortgage.Additionally, the rule change will benefit couples whohave to sell their current residence in cases of multiplebirths from the same pregnancy.
The current law requires individuals to live in ahome for 2 years to qualify for the maximum exemption.Exceptions exist for those who sold prior to 2years due to change in place of employment, health,or unforeseen circumstances. The new law attempts tobetter clarify those exemptions.
For example, according to the , unforeseencircumstances can include a change in employmentthat results in an inability to pay housing costs andreasonable living expenses. This would include a two-incomehousehold where one individual is out ofwork for 6 months. In the area of health, individualswho have to sell their home to combat a disease, illness,or injury would generally qualify for the maximumexemption.
If you own two homes, the IRS defines your principalresidence as the one where you spend the majorityof time during the year. However, even here therecan be exceptions, so it's always best to check withyour tax advisor.