Any Tax Vehicle write off Gurus here?

[tb-av]

I am looking for some wisdom on writing off a vehicle. Sole Proprietor tax filing.

Normally I just drive old cars and take standard mileage. Also using software like Tax cut it depreciates the vehicle over time and I'm not sure the length of time.

But here is question and potential scenario in round numbers.

Let's say I bought a new truck at $40K on a 6 year loan.

If I wanted to take a Section 179 depreciation at say $10K per year for 4 years.. could I do that?

Would I then also go with actual expenses and write off the monthly payment and actual gas, oil, tires, repairs, insurance, etc...

So in 4 years it would be fully depreciated and I would just use actual expenses from day 1 on out.

Does that sound like a valid or smart way to do it? Is there a better way? Is there a forum anyone knows that I could ask?

I'm very close to needing to get a new to me vehicle and thinking about taking the plunge.

...and I guess on a side note.. if I bought a used Truck and added upgrades would they fall under repairs and writing off actual costs?

[Eurodriver]

What kind of truck?

It's Sec 179 (unless you are talking about something else?) and that is a one time expense in the year of purchase. The limits are dependent upon the type of truck, its weight, and its bed length (honestly) But generally speaking the maximum first year depreciation (Sec 179 and Bonus) will be around $11,000, but it could be as high as $25,000 (rounding)

[tb-av]

Right Sec 179,, fixed that...

4Runner or Taco.

I thought on Sec 179 I could enter $40K and then only take say $10K leaving the rest for the following years.

[Eurodriver]

Not for vehicles (and sec 179 only applies to the year of purchase anyway)

A taco or 4 runner is almost always going to be limited to $11,060 because they don't weigh enough (or have a bed 6ft long) to qualify for the full deduction of $25,000.

Also, you have to use the vehicle >50% of the time for business and the deduction is limited to the % of business use if less than 100.

I.E. If you use the vehicle 75% of the time for business, you can take roughly $7,500 in Sec179 & Bonus Depreciation in the year of purchase.

[tb-av]

Ok, thanks... I just found this and it must be from some class on how to depreciate... makes things pretty clear... Do you know what that Exibit A is in terms of IRS docs? IOW, if I want to download the 2015 or 2016 version. It's on page 3 of that doc.

http://www.aipb.org/members/masteringdepreciationupdates/Section%208%20updated%20for%202012.pdf

Bottom line though, my best way to go would just be to do it the standard way as in that pdf example. I would just have a bigger number that get's deferred to later years.

If I bought this year, and just used the standard method and assume 100% use .. would I get the full depreciation for year 1 with that 50% bonus or would it look at me purchasing in Sept and say only give me 25% of the possible Year1 amount?

[Eurodriver]

It depends on the business, and how much in depreciable assets you purchased during the year and in what quarter.

Generally speaking you can take the fully allowed Sec 179 deduction even if bought Dec 31, but if more than 40% (going off my head here. Might be off) of depreciable assets were purchased in the last quarter than you have to use a lesser deduction for that asset for anything but bonus and 179 depreciation. I think it's MACRS mid quarter convention that you have to use. This is all really complex stuff in the IRC and without taking a lot of time you'd need to ask a guy who deals with this a lot (I don't)

To be totally up front with you, the major issue with this shit is that there are exceptions for EVERYTHING. Most software can handle simple vehicle deductions but in order to figure out what's allowed as things get more complex you might consider talking to a CPA.

On the other hand if your only deduction is the new truck then it wouldn't matter what you did, the tax savings in depreciation wouldn't offset the cost of the CPA ;)

[tb-av]

I think it's MACRS mid quarter convention that you have to use. This is all really complex stuff in the IRC and without taking a lot of time you'd need to ask a guy who deals with this a lot (I don't)

Yeah, I think my best bet after doing some reading is just start shopping and maybe try to buy first of next year. Some of the stuff I read had dates of Sept 30 placed in service.

I think I've read enough now to figure what I might want to buy/spend.

Thanks for the insight.

TB

[fallenromeo]

Let's say I bought a new truck at $40K on a 6 year loan.

1. If I wanted to take a Section 179 depreciation at say $10K per year for 4 years.. could I do that?

2. Would I then also go with actual expenses and write off the monthly payment and actual gas, oil, tires, repairs, insurance, etc...

3. Does that sound like a valid or smart way to do it? Is there a better way? Is there a forum anyone knows that I could ask?

4. ...and I guess on a side note.. if I bought a used Truck and added upgrades would they fall under repairs and writing off actual costs?

1. No, 179 must be taken completely in the first year as Euro pointed out. However, depending on the truck, it is not limited to 25,000. If the truck weighs over 6,000 pound and has a 6ft or longer bed, there is no limit for the 179 deduction and you could write off the entire amount in the year placed in service.

2. Yes, you would be required to use this method, you would not qualify for the standard mileage method.

3. This is a loaded question as there are many factors to take into account. First being, how much do you drive for work, and what would the personal use % of the truck be? Let's assume it is 100% business just to make this example easier. The std mileage rate is currently 57.5 cents a mile. So just for miles, you would need to drive 69,565 business miles to break even on the purchase of the car. Then you would need to figure out what your expected actual expenses would be compared to the standard mileage and find out how many miles you would need to drive to break even. If you drive more than that, mileage would be the way to go. If you won't drive that much, take actual expenses. It is all really dependent on how much you drive for business.

4. The typical accountant response..."it depends." A couple years ago the IRS issued clarification on IRC 263a referred to as the tangible property regulations. This is hundreds of pages of clarification and is very complicated, but I can try to sum it up as best I can quickly. There is a test referred to as the BAR test. That stands for "Betterment Adaptation or Restoration." Without going into the specifics, if the money you spent on the used truck fell under one of these tests, it would be required to be capitalized into the basis of the truck and would be depreciated. If the upgrade didn't fall under the BAR test, it would be considered a repair and would be written off as the expense is incurred.

Hope this helps. Good luck with your decision

[Eurodriver]

4. The typical accountant response..."it depends."

:dance3: