Get Paid to Buy a Vehicle for Your REI Business

[William Allen]

I want to show you how you can get paid to buy a vehicle for your business under tax deduction Section 179.

You can potentially write off the entire price of a business vehicle depending on the cost and strategy used. Section 179 is a deduction set up for large business machinery, as well as furniture and office equipment. In this article, we are going to focus on vehicles.

The most important key is that the first use of this vehicle needs to be for business. In other words, you can’t ‘transfer’ a personal vehicle into your business vehicle and get this tax deduction. You have to purchase a vehicle specifically for your business and prove that it’s first use was for business in order to qualify.

I used to think you had to pay cash for these items, and they had to be new.

Interestingly enough, it doesn’t have to be a new vehicle, it just has to be new to you. You can also finance the vehicle new or used and still write it off.

How much can you write off?

Here is where we get into strategy. What you can write off depends on the type of vehicle you buy, the percentage you use it for your business, and what tax bracket you fall into.

The Type of Vehicle:

For cars and light trucks (less than 6,000 pounds) you can write off up to $11, 1060.

For trucks or SUVs over 6,000 pounds like a Hummer or a Ford F150, you can write off up to $25,000 of the purchase price.

Because you don’t have to buy the vehicle brand new, there is an opportunity to write off %100 percent of the cost. What is important in this case is for the vehicle to have characteristics that make it obvious there is no possible way it could be used for personal use.

(Imagine here a passenger van with all the seats taken out).

When you are looking for a vehicle, talk to your CPA and get their opinion. Bring some options considering the weight and uses, and see what deductions you can use it for.

The Percentage of Business Use:

The percentage that you can prove you use this vehicle for business is imperative to the amount you can write off. If you are claiming to use the vehicle 100% for business you have to have a personal vehicle that proves that you aren’t using this vehicle for anything personal.

Keep a log and document that you are using this for business. Make it crystal clear.

The Tax Bracket:

Let me paint a scenario for you.

You are going to buy an SUV for the business over 6,000 pounds and you are going to use it fully for business or claim a 100% use.

You buy a used Chevy Tahoe, it weighs over 6,000 pounds which means you can get $25,000 dollar deduction on your taxes. Let’s say you buy it for $25,000 used. You get 100 percent financing on the car and write off all $25,000. Let’s say you fall in the 25% tax bracket. The deduction you get on your taxes is 25% or $6, 250 cash back in your pocket.

If you play it smart and pay attention to the details you can get paid to buy a vehicle.

In addition, a used vehicle won’t depreciate very fast and you have the opportunity to maintain the value.

Here are a few ‘Gotchas’ or Details that Could Trip you Up:

1. You can only deduct the percentage you use for business. So if it is 80% business and 20% personal use, you can only deduct 80% on your taxes.

2. When you sell the vehicle, there is capital gains only tax. So if you sell it you will pay taxes on all the money you make. For example if I bought a new vehicle for $200,000 and I sell it for $150,000 I will be paying capital gains taxes on the $150,000.

3. Depreciation recapture also applies if you convert your business vehicle from 100% business to 50% personal. You will pay the capital gains to recapture on the 50% you wrote off when you claimed 100% use.

4. You can’t use this deduction to create a loss in your business.

Here is my final piece of advice: If you don’t need it, don’t buy it.

Just because you are depreciating 100% of something, doesn’t mean all that money is going back in your pocket. It's determined by the equation:

type of vehicle + percentage of business use + your tax bracket = Tax Deduction

Example: If you buy a $100,000 vehicle you are not getting $100,000 back if you are in the 25% tax bracket, only $25,000 comes back (and you are deferring some of that in the future because when you do resell you will pay capital gains tax on it).

I always say, ‘don’t finance something if you can’t really afford it.’ I will choose to finance something at a really low interest rate if I know I have the cash to pay it off if need be. The truth is if I am paying .9% financing, I know it’s worth it because I can get a higher than 1% return on my money invested somewhere else.

This is just one of the hacks I am going to share on tax deductions. I hope this is valuable to you!