Another question that really depends on multiple factors.
Posted by taxguru on November 10, 2009
Another question that really depends on multiple factors.
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.
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 by taxguru on August 20, 2009
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 by taxguru on August 3, 2009
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
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.
Thanks for the quick response. The situation is not quite so bad, we found almost $20k in deductions missed.
Thanks again for your help
Posted by taxguru on March 19, 2009
Subject: Re: section 179
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?
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.
Thanks a lot.
Posted by taxguru on March 9, 2009
From a client with a 3/31/09 corp year-end:
Our corp is considering purchasing a van such as a delivery van (GMC, Chevy, etc.).
Could you please inform me of the IRS specifications that must be met to allow us to expense the entire amount.
Before we would purchase the vehicle I will check with you to make sure it meets the requirements.
As you requested, here are the specifications for what a vehicle has to have in order to qualify for deducting all of its cost in the first year. Basically, these rules are most important if a vehicle either weighs less than 6,000 pounds or costs less than $25,000.
I excerpted this from my main tax reference source, TheTaxBook. Section 280F is the part of the tax code that severely limits the deprecation deduction for vehicles.
Vehicles not subject to Section 280F. The following vehicles are not subject to the depreciation limitations under Section 280F or any of the other listed property rules:
• Clearly marked police and fire vehicles.
• Unmarked vehicles used by law enforcement officers if the use is officially authorized.
• Ambulances used as such and hearses used as such.
• Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo.
• Bucket trucks (cherry pickers), cement mixers, dump trucks, garbage trucks, flatbed trucks, and refrigerated trucks.
• Combines, cranes and derricks, and forklifts.
• Qualified specialized utility repair trucks.
• Tractors and other special purpose farm vehicles.
• A vehicle used directly in the business of transporting persons or property for pay or hire, including school buses, and other buses with a capacity of at least 20 passengers.
• A truck or van that is a qualified nonpersonal-use vehicle.
Qualified nonpersonal-use vehicles.
These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company’s name. Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal-use vehicles.
Trucks and vans.
Trucks and vans are passenger autos built on a truck chassis, including minivans and sport utility vehicles (SUVs) that are built on a truck chassis. They have the same definition as passenger autos, except that instead of unloaded gross vehicle weight, the definition is gross vehicle weight not more than 6,000 pounds. The Section 280F depreciation limits for trucks and vans are higher than the limit for cars.
Vehicles over 6,000 pounds.
Passenger autos rated at more than 6,000 pounds unloaded gross vehicle weight, or trucks and vans rated at more than 6,000 pounds loaded gross vehicle weight are not subject to the Section 280F depreciation limits. However, such vehicles may still be considered listed property for purposes of the other listed property rules, including the requirement that the vehicle be used more than 50% for business to take the Section 179 deduction.
Remember that the expensing deduction is only allowed if you actually place the vehicle into service before the end of your tax year. It won’t be sufficient to prepay for it by March 31 and then take delivery later in your next fiscal year. You need to actually use it before the end of the day on March 31 in order to claim it on this year’s tax return.
I hope this helps. Let me know if you have any specific questions.
Could you please let me me know if any or all of the following vehicles qualify for deducting all of the cost in the first year.
1) 2009 GMC Sierra 2500 crew cab pickup. GVWR = 9600 lbs. Bed length = 77 inches. This is the same model we purchased nd were able to deduct in 2006. Price = $39,480
2) 2009 GMC Savanna 12 passenger van. GVWR = 9600 lbs. The seats can be removed. Price = $33,027
3) The dealer also has the same model 2008 GMC Savanna available for about $21,000
I looked over the vehicle descriptions you faxed over and compared them to the rules for the first year expensing.
1. Because the 2009 GMC Sierra has an exterior bed of larger than 72 inches, it would qualify for deducting the entire purchase price of $39,480 plus the sales tax.
2. Because the 2009 GMC Savanna has seats for so many people, it would only qualify for a first year deduction of $25,000 of its purchase price. The remaining cost would be depreciated over five years.
3. Because the 2008 GMC Savanna costs less than the $25,000 limit, its entire $21,000 purchase price plus sales tax could be expensed in the first year.
Besides the fact that the vehicle needs to be actually placed into service before the end of 3/31/09, which I mentioned last time, another important point is that the dollar figure we are working with is after deducting any trade in value the dealer may give you if you are swapping another vehicle for the new one. For example, with vehicle number 1 above, if you are receiving a trade in credit of $10,000, only the net cost of $29,480 will be available to deduct in the first year.
I hope this is clear and not too confusing. Let me know if you have any more questions.
Posted by taxguru on December 12, 2008
We frequently discuss the 6,000 pound exemption from the luxury car depreciation limits that have been around since 1984.
There has recently been some confusion regarding whether the vehicle needs to be constructed on a truck chassis to qualify for the exemption. According to this analysis from CCH, that distinction regarding the chassis may have been removed by IRS.
The IRS announced the applicable 2008 luxury car depreciation caps in Rev. Proc. 2008-22, I.R.B. 2008-12, 658. For the first time since the release of Rev. Proc. 2003-75, the language indicating that an SUV should be considered to be a truck if it was built on a truck chassis was omitted.
In an informal response to a CCH inquiry, the IRS indicated that the language in Rev. Proc. 2003-75 (and the subsequent annual depreciation cap update) was only intended to represent a safe harbor that taxpayers could use to determine whether an SUV qualifies for the higher depreciation caps that apply to trucks and vans with a GVWR of 6000 pounds or less. The IRS either has or will eliminate language in its publications and form instructions that equate an SUV to a truck if it is built on a truck chassis.
Since I have noticed that CCH news stories have a tendency to disappear from their website after a few weeks, I made a PDF copy of this one that you can download.
Posted in Vehicles | Comments Off on Vehicles exempt from luxury car rules…
Posted by taxguru on November 25, 2008
From the IRS website:
Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 55 cents per mile for business miles driven
- 24 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
As described in Revenue Procedure 2008–72, the depreciation portion of the standard rate is 21 cents per mile for 2008 and 2009. This is useful info for calculating depreciation recapture on vehicles that are sold after using the standard rate.
Posted in Vehicles | Comments Off on 2009 IRS Mileage Rates
Posted by taxguru on September 13, 2008
Here is a short video with Tom Herman of the WSJ discussing the rules for claiming a deduction for a donated vehicle.
After all of these years reading Tom Herman’s columns in the WSJ, this is the first time I have seen what he actually looks like.
Over the years, I have discussed this topic several times and the biggest misconception seems to be with the term Fair Market Value. Even Mr. Herman glosses over this point in this video.
Most people assume that the Kelley Blue Book value is gospel as establishing a vehicle’s value. The truth is that the only true determination of an item’s worth is what it will actually fetch on the open market, as per this definition from all over the web.
The price that an interested but not desperate buyer would be willing to pay and an interested but not desperate seller would be willing to accept on the open market assuming a reasonable period of time for an agreement to arise.
That is why the relatively recent IRS rule requiring people to use the charity’s actual sales price of the vehicle for the charitable deduction makes a lot of sense. That isn’t something you ever see me say very often; IRS doing something that makes sense.
I don’t follow used car prices or track what Kelley Blue Book has been doing in response to the higher fuel prices. However, if they haven’t dropped values of gas hogs to reflect their decreases in the real world, that is no excuse to consider the Blue Book prices as Fair Market Value.
A day after posting this, I sent the following to a client:
We received your 2007 personal tax organizer and other docs. I’ve
looked them over and the only item that is obviously incomplete has to do with the Jeep you donated to St. Vincent de Paul (SVP).
I see that you wrote $2,000 in the organizer as the value, but that won’t be enough documentation. As the letter from SVP says, you need to have a 1098-C from them showing how much they actually sold the vehicle for if you are going to claim a value of more than $500. I didn’t see a 1098-C among the documents that you sent in. Please contact SVP to obtain a new copy of that form or else we will have to stick with a deduction of just $500.
To help you understand more about this issue, I have attached a copy of the page from The TaxBook, my main tax reference book with the section on vehicle donations circled in red. Please look it over and see how your situation matches up with the examples shown.
Also, just by coincidence, I recently posted an entry on my blog, with a video from the WSJ, on exactly this subject.
Thanks for you help with this. Let me know if you would like to set up a phone appointment to discuss the details of this in more depth.
The client wrote back:
I don’t have any such documentation. In that case, I’ll go ahead and claim $500.