Tax Guru – Ker$tetter Letter

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Buying A Large Vehicle

Posted by taxguru on July 19, 2007

Q-1:

Subject: More 179 Questions

Hi,

 

I see that you regularly advise people to ask your “tax professional”.  Mine doesn’t seem to be able to give me an answer that gives me a “warm and fuzzy feeling” that he knows what he’s taking about on this subject. Where can I find specific IRS info on which SUVs are on the list of  s179 approved vehicles?  What section of the IRS code  addresses whether on not the SUV must be new or can be used? And, most importantly, does the vehicle have to be registered to his company in order to be uses as a small business writeoff or can it be registered in his name as President of the company and be used for the writeoff? 

 

My husband refuses to make a purchase until be can get a verifiable answer and I want my new Escalade.

 

Thanks in advance for any advice. 

 

PS.  Can you recommend a Financial Planner/Tax Advisor in the eastern Long Island area of New York.

 
A-1:

IRS doesn’t certify vehicles for Section 179.  The definition of luxury vehicles that are severely restricted in their depreciation and Section 179 deductions was defined in 1984 to only include vehicles of less than 6,000 pounds gross vehicle weight.  Check the stats on the vehicle you are considering purchasing to see if that particular model is heavy enough. 

I had put together some links to some lists of the most popular vehicles weighing more than 6,000 pounds; but many of those links have gone out of service.

Assets qualifying for Section 179 do not have to be brand new; just new to you.  This is all explained on my website.

If you are unincorporated, the actual title on the vehicle isn’t as important as the number of business miles driven compared to the total miles for the year.

You definitely need to be working with a good tax advisor.  As I mention in my tips on selecting one, basing that decision simply on geographic concerns is the wrong way to make that choice.

I do have some names of other tax pros, including one in Brooklyn, on my website.

I hope this helps.  Good luck.

Kerry Kerstetter

 
 Q-2:

Hi Kerry,

 

Thanks for your reply. 

 

 We have a Sub S Corporation.  What are the title ramifications of that?  From what I can gather the vehicle has to be between 6,000 and 14,000 lbs. GVW  I plan to buy an Escalade which is surely on the list as it is well above 6000 lbs. GVW  We plan to register it in my husbands name as he is 100% Owner of the corporation and hopefully we will be able to take the Small Business Luxury Vehicle writeoff of $25,000 + $5,000 the first year.  Comment? 

 

 A-2:

This is a perfect example of why it is so important to be working with a tax pro because there are a number of different ways in which to handle a large vehicle purchase. 

I’m assuming that it will be used at least 50% for business or else no Section 179 would even be possible.

Following are just a few of the variations that need to be reviewed with your own personal professional tax advisor.

If the vehicle’s title is in your and/or your husband’s personal name, there is a high likelihood that the actual net tax savings from the Section 179 and depreciation deductions won’t be as much as with corporate ownership because you would have to show them on Schedule A as Unreimbursed Employee Business Expenses.  For several reasons, Schedule A deductions are not as powerful as are deductions that reduce AGI on the front of the 1040.

If the corp owns the vehicle, the Section 179 will pass through to your Schedule E via the S corp’s K-1 and will reduce your AGI, resulting in a larger net tax savings than on Sch. A.

One additional twist to the corp ownership scenario is how you account for non-business personal usage of the vehicle.  You need to work with your personal professional tax advisor to set up a policy to either reimburse the corp for that usage or include its value as additional W-2 income.

Also, you may be confused on the weight issue of vehicles qualifying for the large Section 179 deduction,.  Those weighing between 6,000 and 14,000 pounds are eligible for up to $25,000 of Section 179.  Those weighing more than 14,000 pounds are eligible for as much as the full $125,000 annual overall limit.

Good luck.  I hope this helps.

Kerry Kerstetter

 

 

 

 

 

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