Q:

Hello Guru!

I am in a bit of a dispute with my CPA regarding the 179 deduction for a huge 6000 pound  Range Rover. 

I am considering making this purchase of this huge vehicle due to a huge tax burden that has fallen at my doorstep due to a very good year.  I have a Sub Chapter S corporation in which I own all stock.  Is it necessary that the automobile be titled in the corporate name or can it be titled to me personally?  I get a much lower interest rate personally than the banks are offering for the corporation.

Any comments would be greatly appreciated.

A:

With an S corp, the actual Section 179 deduction will end up on your 1040 either way.

However, to be technically correct, you need to show the actual asset on the books of the entity which has its name on the vehicle’s title.  If you register it in the corp’s name, you will show it on the 1120S as a corp asset.  The Sec. 179 deduction will flow through via K-1 to Page 2 of Sch. E on your 1040.

If you register it in your personal name, you will show it on your 1040.  This then brings up a big difference on how you can deduct the SUV’s costs if you own it personally.  If you set it up as a rental asset on Schedule C or Page 1 of Schedule E of your 1040, you can claim the business related expenses, including Sec. 179, on that schedule. You would need to show rent income for it which would be by leasing it to your corp.  

If you just show its costs as unreimbursed employee expenses, those will have to be reported under the Miscellaneous Deductions section of your Schedule A.

Bottom-line, claiming it on Sch. A will save you much less in taxes than if you claim it on Schedule C or E because anything that reduces your AGI has much more bang for the buck than personal Sch. A deductions.  It is also a fact that high Sch. A Miscellaneous Deductions will  often trigger the infamous AMT (alternative minimum tax), while those exact same amounts won’t trigger AMT when reported on Sch. C or E.

While these comments should help you decide on the best strategy for your situation, you should also consider the issue of liability.  Many people prefer to title their vehicles in the name of their corps so that any potential lawsuit caused by them would be less likely to jeopardize other personally owned assets.

Good luck.

Kerry Kerstetter