Why Do So Many Rich People Drive G-Wagons?
Why Do So Many Rich People Drive G-Wagons?
And can ordinary people use the same tax loophole to buy an SUV for less?
Back in the early 2000s, Hummers and Escalades were the SUVs of choice for the rich and famous. Nowadays, it’s the Mercedes G- Wagon. They’re a common site in rap videos and across America’s wealthiest neighborhoods.
The 2023 model will set you back around $220,000- that’s before tax and any optional extras. However, there are claims that you can buy one for much less than the sticker price- using a tax loophole.
On Tik Tok and Instagram, dozens of prominent content creators have made videos on why so many rich people drive G-Wagons. Typically, they assert that section 179 of the Internal Revenue Code enables business owners to deduct 100% of the cost of the car from their tax bill.
Mainstream media outlets- such as the New York Post- have echoed these claims, without elaborating on the details, or challenging the half-truths and misconceptions that these content creators have been circulating.
So, what’s the truth behind this viral tax loophole? Well, we’re here to set the record straight…
What exactly is a 'tax deductible expense’?
Firstly, we need to define the term ‘tax deductible.’ This perquisite knowledge for understanding section 179. Essentially, it’s when a business expense can be subtracted from the amount of a tax a company has to pay. Such expenses are also commonly referred to as ‘tax write offs.’
So, when content creators make videos with titles like ‘How to get a G Wagon for FREE,’ they’re not asserting that you can just stroll into a Benz’ dealership and drive away in a brand new car without paying a dollar. Rather, they’re claiming that the cost of the car is 100% tax deductible.
What is section 179?
Section 179 allows businesses to reduce their tax bill by deducting eligible expenses they incurred for that year. Specifically, business expenses that pertain to depreciating assets- such as equipment, vehicles and software. Compared with traditional straight-line depreciation, section 179 provides more immediate tax relief.
What’s the connection between G-Wagons and section 179?
Whether a vehicle is eligible and the percentage of the value that’s tax-deductible depends on a wide range of factors- such as the type of vehicle, how much it weighs and the vehicle’s build/usage.
SUVs (including but not limited to G-Wagons) and trucks are eligible for a partial tax-deduction if they meet the following criteria:
Weigh more than 6,000 lbs. (but not more than 14,000)
Business use is over 50%- based on mileage
As per the above, section 179 is sometimes referred to as the ‘Hummer loophole’ (less so nowadays) or, more generally as the ‘SUV loophole.’
It’s worth noting that in the past, a large number heavy SUVs were 100% tax refundable. Since then, however, the rules have become less ‘generous.’ Nowadays, only a very limited number of cars are entitled to the maximum deduction- such as ambulances and tractors. Vehicles which are highly unlikely to be used for non-work purposes.
Why are G-Wagons so heavy?
The G-Wagon, officially known as the The Mercedes-Benz G-Class, was originally manufactured as a military vehicle- later becoming available for civilian purchase in 1979 . Due to its military origins, it’s significantly heavier than a standard SUV.
So, why does section 179 provide tax benefits to heavy vehicles? Well, it was originally intended for agricultural vehicles, such as tractors and trucks used for commercial purposes. Hence, it’s very much a loophole. It was never intended to provide savings for the rich and famous- but that’s how things have turned out.
Are G-Wagons 100% tax-deductible- as many Tik Tokers have claimed?
No, contrary to popular belief, they are not. The limit for 2023 is $23,900. So, unless you somehow manage to buy a G-Wagon for that exact amount, then it’ll be considerably less than 100%.
You can, however, combine section 179 with something called bonus depreciation (this is a topic for another day) to achieve a more drastic tax deduction across subsequent years. When combining these two tax strategies, section 179 must be applied first.
Interestingly, the limit was slightly higher in 2022: $27,000 (up to from $26,200 the previous year). It seems to fluctuate in both directions.
Summary
Vehicles have always been one of the more publicized applications for section 179. Long before Tik Tok was created, publications were publishing stories about the ‘Hummer Loophole’ and how the wealthy were using it to ‘get a free ride.’
Over the past few years, G-Wagon owners have been able to write off a huge chunk of the cost of the vehicle by combining section 179 and bonus depreciation. It appears that prominent Tik Tok creators- such as Humphrey Yang- have conflated the two tax strategies and attributed the overall reduction solely to section 179.
Further reading/ info
A website dedicated to explaining section 179 in laymen terms.
A 17 min YouTube video in which an attorney/ qualified accountant from Florida debunks misinformation surrounding tax-deductible vehicle purchases.