Need Advice... Buying a vehicle as a business expense

[Pete Fiannaca]

Hey folks - Would love to hear from those who own vehicles that are considered business expenses. Jumping from 1 to 5 units soon and I will be buying a used truck to have on hand for building materials, appliances, etc. What are some things to consider? Any major tax implications? Can I even consider a vehicle a business expense if I'm not considered a real estate professional via the IRS? What if I use the vehicle for business and personal reasons? Hope I can get the basics! Much thanks! Pete

[Ashish Acharya]

Yes, you can expense vehicle as a business expense even if you are not RE pro.

Mileage related to business is deductible. Also, expense related to vehicles are also deductible such as oil changes, Maintenance, gas, repairs, parking, tolls, and depreciation.If using the vehicle for both personal and business use, it is important to keep travel log so you/CPA can prorate the expenses listed above.

Also, there are two special depreciations you can take to take the deduction for your purchase:

1) You can take sec 179 deduction where you can deduct entire purchase price(if used 100%, if not need to be prorated) of the vehicle up to 500k(subject to phase out). You need to have a total taxable income to take this deduction. The Section 179 deduction is limited to the taxpayer's aggregate taxable income derived from the active conduct of any trade or business. In addition to a taxpayer's wages, salaries, tips, and other compensation, active business income includes the taxpayer's share of (1) ordinary proprietorship, partnership, or S corporation net income (or loss); (2) Section 1231 gains (or losses) from a trade or business; (3) Section 1245 and 1250 depreciation recapture from a trade or business; and (4) interest earned from working capital related to a trade or business

2) You can also take bonus depreciation (50% depreciation the first year). This can only be taken on a new asset that you put in service. More simply put, the asset must generally be new, rather than preowned. However, there are some exceptions. New property initially used by a taxpayer for personal use and subsequently converted to business use meets the original-use requirement. Property acquired for use in a taxpayer's business that was previously used by another taxpayer does not qualify regardless of how the previous owner used the property, i.e., for business or personal use.

There are requirement such as the vehicle has to be used more than 50% for the business to take this deduction and if the % ever drops below 50%, you have to recapture the depreciation that was taken.

Both of these depreciation makes sense if you have taxable income rather than loss as you expand your RE investing. If you have a loss, you would just be increasing your loss and carrying it forward if you use these depreciations. If you expect to have taxable income in coming years, it better to not take these special depreciations right away, so that depreciation in coming years offsets your taxable income.