Quote from @Michael Plaks:
@Jasdeep Singh
Let's not focus on Section 179 before understanding the big picture.
You have a net profit from your rentals and are looking for ways to minimize your tax exposure. Here're the questions to review first, and you won't be able to accomplish it in on online forum.
- How did you calculate your net profit? Is it really your taxable income?
- Are you optimizing your depreciation? Is there room for improvement?
- Are there some other available deductions that you're currently overlooking?
Only after that we should be talking about a vehicle. Generally, you never buy anything for tax reasons. You buy it when you need it, for personal or for business reasons.
To reframe your question: if you buy a new vehicle and use it partially for your rental business, what can you deduct? It's actually a complicated question. You either deduct mileage allowance at 65.5 cents per business-related mile or you deduct actual expenses, including depreciation. Section 179 is a method of enhancing depreciation.
The actual expenses method is based on your business use percentage. Traveling for maintaining your out-of-town properties is business use. Rental advertising on your vehicle is NOT business use. Buying supplies for your MF property is business use. And so on.
Your driving can be structured in a way that maximizes business use. It's an art, not science. If your business use is high enough (over 50%), you may be able to use Section 179 to some degree. Or you may be able to use other methods. It's case by case.
@Michael Plaks thanks for responding, I've seen your be a great resource for any questions asked on these forums.
My 2 rental properties end up with a net profit after subtracting the following from total revenues:
-Depreciation (houses were bought at $12xxxx and $16xxxx so this is not substantial)
-Mortgage interest
-Property tax
-Utilities (I pay tenant utilities)
-Maintenance/Operating Expenses for the year (Any handyman repairs, quarterly pest control services)
Despite these deductions I end up with approx 10-20K in NI on paper (high cap rate).
Hence why I am exploring wiping out this remainder via the Section 179 depreciation available if I can show business use between the multi-family property I own/live in and the 2 rental properties that are out of state.
I work from home, so any personal use of vehicle is only on the weekends
Your help is appreciated.
