Section 179 Vehicle Depreciation

[Jon Fletcher]

Have any real estate investors used their passive income to purchase a 6,000lb+ vehicle? I'm trying to understand the full benefit of the Section 179 tax code. Using simple numbers, if I purchase a used SUV for $25,000, I can finance it and pay small monthly payments. But I can still claim the full depreciation in Year 1? Which theoretically could be used to offset taxes on income? 

[Michael Plaks]

@Jon Fletcher

1. You need to use this vehicle for business purposes and keep a log. For example, if by "passive income" you refer to syndications, there may be zero business-related driving. 

2. You can only claim tax benefits for the business portion of a vehicle. If you're buying an SUV that you will be driving 60% for business and 40% for personal, then you can depreciate only 60% of the cost. In your example, instead of $25k, you can only deduct $15k.

3. If your business use is 50% or less, you cannot use Sec. 179 at all.

4. Instead of Section 179, you may be better off with 100% Bonus depreciation that does not have a ceiling. You would still need  to document business use of over 50%.

5. If you're able to write off the purchase of the vehicle (or a major part of it) in the first year, your deductions in the subsequent years will be reduced. You won't be able to use mileage allowance. And when you sell it or trade it in, you might have taxable income, reversing your juicy deduction in the first year.