Tax Guru – Ker$tetter Letter

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Archive for the ‘Vehicles’ Category

2012 Vehicle Depreciation Amounts

Posted by taxguru on March 7, 2012

Each year, IRS issues the amounts that can be claimed as depreciation for vehicles placed into service that year, over their useful lives.  As has been the case since these Luxury Vehicle rules were implemented in 1984, they do not apply to vehicles weighing more than 6,000 pounds GVW.

Revenue Procedure 2012–23 (courtesy of CCH) has the following amounts for business vehicles placed into service during 2012. 

Passenger Automobiles:
Year 1 –  $3,160 ($11,160 if bonus depreciation applies)
Year 2 –  $5,100
Year 3 –  $3,050
Year 4 and on – $1,875 per year 

Trucks and Vans:
Year 1 –  $3,360 ($11,360 if bonus depreciation applies)
Year 2 –  $5,300
Year 3 –  $3,150
Year 4 and on – $1,875 per year

 

TaxCoach Software: Finally! Plain-English Tax Planning That Builds Your Business!

 

Posted in 4562, Vehicles | Comments Off on 2012 Vehicle Depreciation Amounts

Recapturing Depreciation

Posted by taxguru on February 27, 2012

 

Q:

Subject: Section 179 deduction question

Hi Kerry, I hope you’re doing well today. I came across one of your tax guru web pages (http://www.taxguru.org/incometax/Rates/Sec179.htm) as I was seeking some tax advice. Thank you in advance for providing the information. I do have a question and wondering if you wouldn’t mind assisting me as it pertains to section 179.

I had purchased and placed in service a 2010 Cadillac Escalade (shorter model) on Sept. 9, 2010 as I am a self-employed individual and had utilized the vehicle for my consulting business (sole proprietor) the day of inception thru the remainder of year 2010 and all of year 2011. I had taken the section 179 deduction for tax year 2010 of $25,000 plus the allowable bonus depreciation of $11,855 for a total of $36,855 deprecation deduction in tax year 2010.

At this time, I hit extremely difficult income times as my income has decreased over 70% starting from the beginning of October 2011 to present as my consulting contracts have just about dried up and now I have to look at getting rid of assets. Unfortunately, I can’t afford the Escalade at this time and need to dispose of it immediately. If I were to sell it outright today and not trade it for any like-kind exchange, what tax implications would I be looking at for tax year 2012 meaning, what estimated tax do you think I would have to pay in the disposition of the Escalade? Additional information is I claimed the 5 year recovery period using the 200 DB-HY method/conversion and entered the cost basis of the esclade as $61,855 (that’s what I paid for it).

I’m only asking for an estimate, if you can provide one, and thank you very, very much in advance, if you’re able to provide an answer. I really appreciate it.

best regards,

 

A:

Calculating the taxable gain is pretty straight forward.

Add up all of the Section 179 and depreciation deductions you have claimed for the vehicle and then subtract that from your original purchase price. That will give you the adjusted cost basis (aka Book Value) of your vehicle. Anything above that amount that you sell it for will be your gain.

This gain, which is technically depreciation recapture, will be taxed as ordinary income on your 1040. The actual rate you will be paying for it will depend on your other income and deductions and what tax bracket you are in.

A professional tax advisor can work with your specific numbers to get you a more precise estimation of the tax effect of the sale. Another way to do this, if you are taking the risky approach of preparing your own tax returns, is to use whatever software you have for the 2011 returns and prepare a proforma 2012 with the sale of your Escalade and your other estimated 2012 figures.

You didn’t say whether you paid cash for the Escalade or financed it. The gain calculation is the same either way. However, you need to remember that the debt relief from the pay-off or assumption of any loan you may still have on the vehicle is considered to be the same as receiving cash by IRS. The total sale price will be the loan balance paid off plus any cash you receive.

Good luck. I hope this helps.

Kerry Kerstetter

 

 

Posted in 179, 4562, Vehicles | Comments Off on Recapturing Depreciation

2012 IRS Mileage Rates

Posted by taxguru on December 9, 2011

IRS Announces 2012 Standard Mileage Rates, Most Rates Are the Same as in July

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 55.5 cents per mile for business miles driven
  • 23 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

 

Posted in Deductions, IRS, Vehicles | Comments Off on 2012 IRS Mileage Rates

2010 Vehicle Depreciation Limits

Posted by taxguru on November 19, 2009

CCH has calculated the inflation adjustments for the depreciation limits on business vehicles first placed into service in 2010.  Based on past experience, they expect IRS to release their official version of the calculation in April 2010.

Ever since the ridiculously low luxury car limits on depreciation were initiated in 1984, we have had to break the news to clients that they were driving luxury cars in the eyes of the IRS, even though that wasn’t reflected in reality.

The new limits per CCH:

Passenger Vehicles:

Year 1                            $3,060
Year 2                              4,900
Year 3                              2,950
Year 4                              1,775
Year 5                              1,775
    Five Year Total         $14,460

Trucks & Vans:

Year 1                       $3,160
Year 2                         5,100
Year 3                         3,050
Year 4                         1,875
Year 5                         1,875
    Five Year Total    $15,060

 

Posted in 4562, Vehicles | Comments Off on 2010 Vehicle Depreciation Limits

Sec. 179 For Yachts?

Posted by taxguru on November 10, 2009

Another question that really depends on multiple factors.

YouTube page.

 

 

Business Plan Pro 

 

Posted in 179, Vehicles, video | Comments Off on Sec. 179 For Yachts?

Maximum Sec. 179 For Vehicles – VidCast

Posted by taxguru on November 8, 2009

It’s not a cut and dried answer as to the maximum that can be claimed, as I explain in this vidcast Q&A.

If the embedded player doesn’t work, you can access the video directly on YouTube.

 

 

TaxCoach Software: Finally! Plain-English Tax Planning That Builds Your Business!

 

Posted in 179, Vehicles, video | Comments Off on Maximum Sec. 179 For Vehicles – VidCast

Financing an SUV For an LLC – VidCast

Posted by taxguru on November 7, 2009

We have been looking at ways in which to improve the quality of our content; so we are adding short videos (VidCasts) of my answering reader questions.  These should be more enlightening than the completely text versions. 

This is going to be an evolving process as we become more proficient in utilizing this medium and our skills with the software and equipment improve.  Our goal as of now is to do the same kind of Q&As as I have been posting for several years on my blog in these free short YouTube videos.  

As we become more comfortable with this technology, we also plan to present some more intense live online webinars on some of the topics that seem to have the most interest around the country. There will be a charge for these to cover the costs, as well as for our time.  As charitable as we are, we are evil capitalists and do intend to make a profit on this venture.  The mini-classes will be of particular interest to small business owners and investors who are interested in learning techniques on how to minimize their taxes, as well as professional tax advisors with whom I can share my 34 plus years of experience.  The costs will be very reasonable and much less than the $250 per hour that clients are paying me for one on one consulting.   

This first batch of VidCasts that we produced are rough as we learn how to operate everything; but the information they contain should be useful for anyone wanting to keep their taxes down.

If the embedded player doesn’t work in your browser, you can go directly to the YouTube page to watch it.

  

 

 

Posted in LLC, Vehicles, video | Comments Off on Financing an SUV For an LLC – VidCast

Recording Mileage

Posted by taxguru on August 20, 2009

While keeping track of financial matters is relatively easy with QuickBooks, logging a year’s worth of trips in order to document business usage of a vehicle is a much more laborious task.
I don’t have an iPhone and have no plans to get one; but as a life-long gadget freak, I have been intrigued by the growing list of applications being developed for it. In the latest Intuit newsletter, I just saw an ad for this app called Tap2Track Mileage that is supposed to use the iPhone’s GPS capability to keep a log of vehicle trips that can produce an Excel spreadsheet that will be very useful at tax time.
This reminded me of a much more complicated gadget that was available in the mid 1980s for logging vehicle miles. That contraption required installing magnets onto the vehicle’s drive shaft to record mileage on a device inside the vehicle, producing a paper listing of miles driven for business, medical and charitable purposes. If I remember correctly, that product sold for around $500; much more than the $3.99 this new app sells for.

I would be very interested in hearing from anyone who uses this new app as to how accurate and convenient it is in real life usage.

Posted in gadgets, Vehicles | Comments Off on Recording Mileage

Double Depreciating Vehicles?

Posted by taxguru on August 3, 2009

Q:

Subject: Question about Section 179 Deduction

I was reading your website and had a question about section 179.

In 2007 I purchased an Expedition EL >6000 lbs. I took the $25,000 deduction, I am being audited and am being told that I can not take the milage deduction and the 179 deduction. I thought the 179 was a depreciation event and had nothing to do with deducting milage. Can you elaborate??

Thanks in advance

A:

I constantly warn people about the dangers of trying to prepare their own tax returns because it is all too easy to make simple mistakes such as the one you did.

With business vehicles, you generally have the option of claiming the IRS’s standard per mile deduction or the prorated actual expenses based on business miles to total miles for the year.

The standard mileage rate includes a factor for straight line depreciation. This was 19 cents per mile for 2007.

The Section 179 expensing election is basically a kind of very accelerated depreciation. If you claim it, you are required to use the actual expense method for that vehicle and you are not allowed to use the standard mileage rate ever for that particular vehicle because that would result in double deducting the same depreciation.

There is no nice way to say this; but you screwed things up big time by trying to deduct both Section 179 and the standard mileage rate on the same vehicle. Any professional tax preparer with even limited experience would know better than to do that.

With that kind of basic error in your tax return, there’s no telling what others you have as well, including many that probably cost you money. Before you go any further with the IRS auditor, you should hire a professional tax advisor to review your 2007 1040 and see if s/he can find some tax saving deductions that will offset the extra taxes that you are going to have to pay as a result of double deducting vehicle depreciation.

If you already prepared your own 2008 1040, you will also need to have a professional tax advisor fix the mistakes that it has.

I’m sorry to be the bearer of such bad news and I hope this helps you salvage some tax savings.

Kerry Kerstetter

Follow-Up:

Thanks for the quick response. The situation is not quite so bad, we found almost $20k in deductions missed.

Thanks again for your help

TaxCoach Software: Finally! Plain-English Tax Planning That Builds Your Business!

Posted in 179, Vehicles | Comments Off on Double Depreciating Vehicles?

Sec. 179 vs. Standard Mileage Rate

Posted by taxguru on March 19, 2009

Q:

Subject:  Re: section 179

Hi,

Thanks for your previous replies in the past. If you take a section 179 deduction can you still deduct  your businees mileage. O does the section 179 deuction fall under the itemised deductions therefore precluding mileage claims?

thanks

A:

You really need to be working with a professional tax advisor because you are mixing up different tax issues that are technically not connected.

As I have explained on several occasions, if you use Section 179 or any other accelerated method of depreciating a vehicle, you are required to use the actual cost method of calculating deductible vehicle expenses for that particular vehicle for as long as you own it.  You are not allowed to switch to the IRS’s standard per mile rate because that rate includes a portion for deprecation and to switch to it would end up giving you double deductions for deprecation.

The issue of the standard personal deduction versus Schedule A itemized deductions is completely separate from the issue of how the vehicle costs are calculated.  As always, it’s generally a good idea to keep track of all of your actual itemized deductions and use them on Schedule A if they are higher then the standard personal deduction.

I hope this helps; but you need to be working with a tax professional.

Good luck.

Kerry Kerstetter

 

Follow-Up:

Hi,

Thanks a lot.

 

 

Posted in 179, Vehicles | Comments Off on Sec. 179 vs. Standard Mileage Rate