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Business owners in US can buy a new Model X for less than a Model 3

Discussion in 'Model X: Ordering, Production, Delivery' started by MelaniainLA, Jul 14, 2018.

  1. MelaniainLA

    MelaniainLA Member

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    So I had started a thread on the recent Trump tax plan (passed late 2017), effective this year, which allows business owners to IMMEDIATELY deduct (no depreciation) up to 100% of the value of a Model X as a business vehicle from their federal income taxed in the year of purchase. That said, the thread was in Model X forum, so Model 3 people (I was a reservation holder and cancelled to get the X for less!) might not have seen it. The link to the other thread is here:
    Model X IRS 100% Deduction “Hummer Loophole” - 2018 Edition

    Basically, here's a summary below. Contact me via PM for any questions about this:

    I had been on the Model 3 list for a long time and had been getting VERY impatient about the delayed arrival of the $35,000 model (which likely won't qualify for the federal $7500 tax credit). Then I heard that because I'm a small business owner and would be using the vehicle mostly for business (especially in its first year), I now would be eligible for an immediate 100% federal tax deduction on the Model X (but not Model 3 or Model S) because the IRS characterized the Model X as a heavy industrial vehicle (>6000 pounds GVWR weight, intended for actual equipment like farm tractors or delivery trucks but this is a loophole). With this, plus state tax deduction, plus the $7500 federal tax credit, a LOADED Model X (with FSD and EAP and premium seats etc!) came out CHEAPER than a Model 3, plus I could get it NOW and (with referral code from existing Model S or Model X owner) get free unlimited Supercharger access for life (not available for Model 3). I called my tax attorney who confirmed I could do it, and I did. NO brainer. Here's the math to show what happened before 2018 and during/after 2018 with new Trump tax plan:

    First, the federal tax credit of $7500 will now be available 100% if you take delivery by end of September 2018. That's a certainty.

    For the federal 100% depreciation/deduction, let's assume a $100,000 car and 100% documented business use to make the math easy (lower business use and you lower the percentage write-off, so for the rest of 2018, keep another car and try only using the X for business uses).

    PREVIOUSLY (before Trump tax plan was passed), you would get:

    Section 179: $25,000 deduction
    50% Bonus Depreciation (50% of remainder, which is $75,000): $37,500 deduction (so far deduction is $25k + $37.5k = $62,500 deduction)
    Regular depreciation (1/5 of the remaining $100k-$62.5k) = $7500 (with $7500 federal deducted each of the next 4 years as well)
    TOTAL DEDUCTION IN 2017: $70,000 (with the remaining $30,000 spread over the next 4 years, based on % business use).

    As of 2018, with the NEW tax bill, which CHANGED the 50% bonus depreciation to 100% bonus depreciation, you now get:

    Section 179: $25,000 deduction
    100% Bonus Depreciation (1000% of remainder, which is $75,000): $75,000
    Regular depreciation: Not applicable!
    TOTAL DEDUCTION IN 2018: $100,000 in full - immediate, no depreciation needed aside for the state income tax component, which is way less than federal.

    So what is new is the 100% bonus depreciation. You can't be an employee and can't use it for commute from home to a regular work place, but you can for anything else that is legitimate business related for a business you personally own (sole proprietor or other pass through entity).

    Send me a private message if I can be of help. There are many threads on Tesla Motors Club about this and many many small business owners like me who have gotten a loaded Model X for LESS than a Model 3, without having to wait. Look into it, talk to your tax adviser, and let me know if there's anything I can answer for you from a non-CPA perspective. Good luck!
     
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  2. P85_DA

    P85_DA Supporting Member

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    ...exactly what I did :eek:....great summary !!
     
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  3. Anzir

    Anzir Supporting Member

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    Dude, why did you post this again in the X forum? You should have just bumped your old 2018 thread.
     
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  4. P85_DA

    P85_DA Supporting Member

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    ...relax ...other thread was too long ...what would u have rather seen a new “..my horrible CPO experience...” thread ? :eek:
     
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  5. Anzir

    Anzir Supporting Member

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    It looks like this is a thread he made for the Model 3 forum and just copied/pasted here. All the info provided here is in the first post of the original thread (which is very informative).

    I hope to be taking delivery within the next few weeks. Hopefully I don't have another "horrible experience" thread to add to the pile.
     
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  6. P85_DA

    P85_DA Supporting Member

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  7. Anzir

    Anzir Supporting Member

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    P100D. With the tax incentive I thought, if I'm going to spec a 100D at $120k, might as well go all the way.
     
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  8. GayForEllon

    GayForEllon Banned

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    More tax fraud... :eek:
     
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  9. MelaniainLA

    MelaniainLA Member

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    "Tax fraud" is fabricating business need or business use. This is PRECISELY why I highlighted to talk to a tax attorney - they'll keep you honest and prevent you from inadvertently making a mistake that could be interpreted as fraud. One should NEVER deliberately lie -- not worth federal prison for a few bucks off a pricey SUV. This is for people who, after careful review, are legitimately eligible for an evident loophole in our tax code. Appreciate the opportunity to clarify.
     
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  10. cwied

    cwied Member

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    Correct me if I'm missing something, but if you take the whole $100,000 depreciation in the first year, don't you end up losing out on depreciation in the following years? Unless you have that much income in the top bracket, wouldn't you come out ahead by spreading it over several years instead? Did you model the benefit over several years, or are you just looking at the first year's savings?
     
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  11. GayForEllon

    GayForEllon Banned

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    BOOM! Instant audit btw.

    If you actually do have a business legitimate enough to fully depreciate a $100,000+++ vehicle as your first and only business vehicle, prepare to have to open all of your books to the good folks at the IRS. Defending that audit may cost you more than you gain from the 100% write off.
     
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  12. GregTexas

    GregTexas Member

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    I don't even deduct my home and only office. The fewer red flags the better.
     
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  13. ajitator

    ajitator Member

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    hello, why delivery date of september 2018? i thought as long as you get it delivered before dec 31, 2018 you would have the 7500 tax credit.
     
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  14. GayForEllon

    GayForEllon Banned

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    Seriously not worth it. They open your books and they get to see EVERYTHING...not just the part about the car. And they can go back seven years! You keeping all your receipts?

    Self-Employed? Avoid These Audit Red Flags on Your Tax Return

    Claiming 100% Business Use of a Vehicle

    [​IMG]
    Thinkstock


    When you depreciate a car, you have to list on Form 4562 the percentage of its use during the year that was for business. Claiming 100% business use of an automobile is red meat for IRS agents. They know that it's rare for someone to actually use a vehicle 100% of the time for business, especially if no other vehicle is available for personal use.

    The IRS also targets heavy SUVs and large trucks used for business, especially those bought late in the year. That’s because these vehicles are eligible for favorable depreciation and expensing write-offs. Make sure you keep detailed mileage logs and precise calendar entries for the purpose of every road trip. Sloppy recordkeeping makes it easy for a revenue agent to disallow your deduction.

    Advertisement

    As a reminder, if you use the IRS's standard mileage rate, you can't also claim actual expenses for maintenance, insurance and depreciation. The IRS has seen such shenanigans and is on the lookout for more.
     
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  15. DCGOO

    DCGOO Member

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    But, if you think you legitimately qualify for this or any other tax benefit, and do not take advantage of it, that is just stupid. If I was not trying to retire, and shuttering my business, I would take it. But due to the non-expiring recapture provisions (you have to return a portion of depreciation if you ever dispose of the vehicle) I decided to not do that. I am better off with the 7500 credit, which is not available if the depreciation takes you to a loss (which it absolutely would in my case)
     
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  16. MelaniainLA

    MelaniainLA Member

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    Bingo -- that's the way to think about this -- rationally, and based on your individual situation. Thanks!
     
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  17. jtdiddy

    jtdiddy Member

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    that's why u should never try to go for the 100% full depreciation. my cpa is uber conservative but he says that the business car deduction is not really that a red flag anymore and widely accepted now by IRS. but he advises to keep the depreciation deduction in the 75% to 90% range to be more kosher.
     
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  18. MelaniainLA

    MelaniainLA Member

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    You should go for what is honest, legal, and which you can legitimately, verifiably document. In my case, delivery was pushed to near end of year. I was on vacation for much of the remainder of 2017 (using my wife's car). I didn't sell my old car either so I had it as personal vehicle. I picked it up from delivery center, drove straight to a client, then to my home office, then back to a client, then home office, where it was parked for the rest of the calendar year, unused until 1/1/18. Tax attorney said THAT is 100%. Few other things are. I must say, it was tempting to use the new X for a 1000 mile road trip, but no way :)
     
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  19. SageBrush

    SageBrush 2018: Drain the Sewer

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    Pass through entities have revenues and expenses, with the difference accounted for as profit that is passed to the shareholders as a distribution subject to personal income taxes. At least so I understand things ...

    IF the depreciation can be treated as an expense, then the benefit is equal to the cost of the car * the marginal tax rate(s) of the shareholders. Certainly that is generous but it is a YMMV whether the final cost is less than a Model 3 list price, and it ignores the tax benefits that are available to the Model 3.

    I'm not voicing an opinion whether to buy the car; I only want to add a little clarification to OP's statement that
     
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  20. MelaniainLA

    MelaniainLA Member

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    Absolutely -- thank you for adding what I had overlooked to say!
     
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