Ok so here you guys go. There is criteria for determining a trade or business expense. Whether an expenditure is allowable as a tax deductins for a trade or business the criteria is as follows:

1. expense must be ORDINARY and NECESSARY
2. must be REASONABLE in AMOUNT
3. must be related to an activity which is deemed to be a trade or business
4. must be for a business related purpose rather than a personal expenditure
5. cannot be capital expenditure
6. cannot be related to the generation of tax-exempt income
7. is not against public policy.

If you need me to go into further detail on any of those let me know, but most should be self explanitory.

Greg

 

Yes, you are correct!

 

Not exactly, leasing allows you to deduct the full amount of the lease payments plus initial cap cost reduction because it is 100% depreciation and finance charges + taxes related to the use of the vehicle. Assuming of course that the car meets the requirements for legitimate business usage.

Purchasing does allow you to deduct the vehicle because you can depreciate it over a number of years. So it is deductible but if you sell the car before you fully depreciate it, you have to recapture part of the amount that you have deducted. It essentially becomes income on your tax return. You don't have to pay cash for it either, you can finance it and deduct the interest expense as well. Also, the old SUV loophole that allowed the lump sum schedule 179 expense required that you purchase the vehicle. Leasing would not have worked for that tax break. You could also keep the car in your personal name as long as you own the company, it does not have to belong to your company because you own the company. You just need to demonstrate at least 50% usage.

 

Yes you are correct on the depreciation aspect and on the SUV deal my partner did a Range and then had to recapture the income when he sold the truck 2 years later..

Still in a corporate situation a lease is easier, better and cleaner and much less outlay as you do a sign and drive does not pay to lease any other way. I have never had to give any money at inception except registration and dealer fee (if I cant get out of it). It does not pay to put any money down on a lease!

 

What happens after you've fully depreciated a purchased car over 3 years? What if I want a new car to do the same process with, but I don't want to sell the old one? (maybe give to spouse, for instance, with no writeoffs at all of course)

 

Not sure about that one but your adjusted basis on the old car is fully depreciated is ZERO! thats important because if you sell, what you get ofr hte car in terms of tax is all gain.

 

The Luxury auto depreciation rule limits the maximum annual depreciation to a few thousand dollars. The days that you could fully depreciate a luxury car in 3 years disappeared in the mid 80s. That is why buying a $150k car for business use makes less sense these days. As you are limited in your annual depreciation. That would take decades to fully depreciate a 997tt.

The first year 179 expense in lieu of depreciation could help, but that has limitations as well.

If you can prove 100% business use, i.e. no commuting, then you can deduct every cents in a leased car. But that's another story as the lease company actualy owns your car, the lease payments are but monthly rents.

The 6,000 # GVW loophole for SUV also went away in 2006.

CP