The proposed legislation - known as the Economic Security and Recovery Act of 2001 - would result in lower vehicle costs for owned and leased fleets. The legislation includes an additional first-year depreciation deduction equal to 30 percent of the adjusted basis of property put into service after Sept. 10, 2001. The provision applies to vehicles. (As of press time, the U.S. Senate has yet to vote on its economic stimulus bill.) The House bill would amend the IRS Code to liberalize the first-year depreciation limit on owned-fleet vehicles. Currently, for vehicles first placed into service in 2001, the first year's depreciation is limited to $3,060 (equivalent to a new vehicle with a fair market value of $15,400). HR 3090 specifically increases the amount of depreciation allowed in the first year to $4,600. The new depreciation provisions would apply to vehicles acquired pursuant to a written binding contract that was entered into after Sept. 10, 2001, and before Sept. 11, 2004. However, the bonus depreciation being proposed is not a proper substitute for a permanent reform of the recovery period, said Roger Pies, an attorney with Baker & Hostetler, the legal firm representing the American Automotive Leasing Association (AALA). "The bonus depreciation does not provide much benefit because it is recaptured quickly on a vehicle's disposition. Some means to equalize the benefit across asset classes and holding periods should be employed," said Pies. I agree and in my opinion Congress should adopt instead the recommendations made by the U.S. Treasury Department in 1991. Depreciation Rules are Antiquated & Unfair Under current Internal Revenue code, business-use passenger cars have a class life of three years, but are assigned to a five-year property recovery class. The five-year depreciation recovery period for business-use vehicles, created by the Tax Reform Act of 1986, is inherently unfair to the owners of fleets regardless of whether they own or lease their vehicles. Prior to the 1986 Tax Reform Act, depreciation of a business-use passenger car was based on a three-year recovery period. The 1986 law extended the recovery period, by requiring full depreciatioin to be spread over five years. According to Automotive Fleet's annual depreciation studies, intermediate-sized cars are in practice kept in service an average of 30 months - not 60 months - and during this period, the tax law's depreciation allowance is inadequate. This extended recovery period is costly to fleet because vehicle depreciation is the single largest expense representing approximately 40 percent of total lifecycle costs. In essence, the 1986 law overcharges fleets on taxes and substantially increased the costs of providing vehicles to company drivers. This unfair taxation has not escaped the notice of the U.S. government. In 1991, the U.S. Treasury Department released a business-use passenger car depreciation study that found the economic life of a car in business use was 3.5 years. The study recommended that the class life for business-use cars be extended from three to 3.5 years, in order to be equivalent to the business vehicle's actual economic life. Later in 1991, the Treasury Department followed up with a companion depreciation study on business-use light-duty trucks. The proper recovery period for vehicles under the Treasury studies is less than the current law's five-year recovery period. The Treasury report recommended that light-truck class life be extended from four to 4.5 years. The latest U.S. Treasury depreciation study was released on Aug. 1, 2000, which acknowledged that depreciation rules are antiquated and use "ambiguous classification criterion," but stopped short of making any specific legislative recommendations to change specific rules. Eliminate the Unfair Financial Burden on Fleets Changing vehicle depreciation rules to a shorter recovery period would be advantageous to the national economy and to the fleet industry. - It would allow for faster vehicle replacement cycles. Since 1986, there has been a "lifecycle creep" as vehicles have been kept in service for longer and longer periods. One of the factors favoring this is the current depreciation regulations. - A faster replacement cycle will mean lower maintenance expenses, since the vehicle will be covered under the manufacturer's new-vehicle bumper-to-bumper warranty. Also, operating a fleet of newer vehicles will result in lower vehicle downtime. Changing business-use vehicle depreciation recovery period is a fairness and equality issue, which was altered with the Tax Reform Act of 1986. A revised depreciation schedule for business-use passenger cars to a three-year recovery class would end the unfair financial burden placed on company fleets. Let me know what you think.