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

[cpa]

Pass through taxes on many small businesses like service providers (real estate, lawyers, docs etc) are taxed as ordinary income, 37% or higher when you include self employment tax. Plus state tax.

Maybe. Depends on the entire taxable income on the return and the filing status. The popular view is that self-employed service providers make mid-to-high six figures per year. That is true in many, but not all, situations. We can still receive up to a 20% deduction from our taxes.

Here are the proposed regs for the new Section 199A. The reading becomes a lot more fun after consuming several cocktails.

 

[MXWing]

Reminds me of a time when everybody had 10 kids until a social security number had to be provided.

3/4 of American children disappeared overnight.

It’s a legal deduction you can take but I think it’s wrong to sell as a 100% business deduction when it’s not believable in the majority of cases.

Do we want to keep yelling loudly about this over and over and some people misuse it
and then all Model X’s become audit targets.

Discretion please.

Let the business owners figure it out rather than encouraging joe schome to go to clerk record Office and spin up a business for a “free Tesla”.

 

[tesababa]

It’s nice of you to share. So I’ll also share since I did a lot of thinking and calculations decidding X versus 3.
I finally bought 3. Maybe I was wrong but I’ll explain below.
The reason was that, even though you are correct about the new regulations allowing 100% tax deduction the first year for business owners for X, you can deduct also almost 100% of model 3 if you use it for business: it just takes 5 years!
So at the end you will be paying more for model x because it’s much more expensive and even with tax deduction the residual amount you have paid is higher for model x.
You get the same amount of federal credit for both.
The range of 3 and X100D is the same. ( if 3 not more) but the price for X100D is at least twice more.p
The free supercharger is not really big deal.
There is no doubt $100K tax deduction in one year is a bigger risk in terms of IRS concerns than gradual model 3 deductions. But, worse case scenario you get audited and you win.
All that said, if you prefer an SUV or larger than M3 vehicle, there is no doubt you should go for X and no doubt X is a more luxury car than 3.
However strictly from financial point of view, 3 with 5-year deductions is just much cheaper( even with the quick 100% tax deductions for X).

 

[spectrum]

It’s nice of you to share. So I’ll also share since I did a lot of thinking and calculations decidding X versus 3.
I finally bought 3. Maybe I was wrong but I’ll explain below.
The reason was that, even though you are correct about the new regulations allowing 100% tax deduction the first year for business owners for X, you can deduct also almost 100% of model 3 if you use it for business: it just takes 5 years!
So at the end you will be paying more for model x because it’s much more expensive and even with tax deduction the residual amount you have paid is higher for model x.
You get the same amount of federal credit for both.
The range of 3 and X100D is the same. ( if 3 not more) but the price for X100D is at least twice more.p
The free supercharger is not really big deal.
There is no doubt $100K tax deduction in one year is a bigger risk in terms of IRS concerns than gradual model 3 deductions. But, worse case scenario you get audited and you win.
All that said, if you prefer an SUV or larger than M3 vehicle, there is no doubt you should go for X and no doubt X is a more luxury car than 3.
However strictly from financial point of view, 3 with 5-year deductions is just much cheaper( even with the quick 100% tax deductions for X).

How can you classify a Model 3 as a business vehicle when it has a gross weight of less than 6000 lbs?

 

[Ampster]

How can you classify a Model 3 as a business vehicle when it has a gross weight of less than 6000 lbs?

Business use is business use regardless of the vehicle weight. The 6000 weight allows accelerated depreciation. Different math.

 

[Camera-Cruiser]

The real key is if you are business owner, and secondly if you use it for business to keep it ethical.

Many of the people I work with have Ford F350 class trucks and larger for hauling materials to jobs. They are 100% business vehicles, unless they like driving something 30' long with a stake bed and lift gate around for fun. Others have Sprinters for transporting video production equipment around too. And yes, you could use a Hummer, or a Model X to do the same. So it all makes sense to me either way. Our Model S is written off as a business vehicle since we purchased it to drive from jobsite to jobsite all over Southern California. I considered the X, but the Falcon Wing doors just didn't do it for me.

We have other vehicles that serve as our family cars for trips. So we stay kosher with the IRS and ethically too.

We will be adding a 3 in addition to our S soon too. Luckily, the IRS can't tell me to buy a base 3 vs a P3+, regardless of what I actually need to get to a job site. There is nothing unethical about it, even though our accountant (who doesn't seem to care a wit about Teslas) thinks its a waste from a monthly overhead point to view. Of course he is the one who has seen and calculated the $13,000+ in fuel savings in the last three years, so go figure.

 

[SageBrush]

However strictly from financial point of view, 3 with 5-year deductions is just much cheaper( even with the quick 100% tax deductions for X).

I am not positive, but this may not be right for two reasons:

1. Can cost of use be deducted in addition to depreciation ?
2. When is a sale allowed that does not trigger a deduction allowance claw back ?

I'll also point out that personal purchase may be a better idea after tax credits and insurance are considered. That was my case.

 

[Ampster]

Can cost of use be deducted in addition to depreciation ?

What cost of use? Electricity? Probably not much difference between MX and M3, especially compared to cost of gasoline for ICE.

 

[SageBrush]

What cost of use? Electricity? Probably not much difference between MX and M3, especially compared to cost of gasoline for ICE.

I was thinking more about insurance.

One other item to mention: tax savings today are worth more than tax savings in the future.

 

[tesababa]

Let me be clear that I actually tried hard to convince myself to buy X. I read and thought and calculated and asked A LOT!
But I could not fight the numbers.
In terms of value of tax deduction now versus over 5 years:
You are correct that since you get the tax refund right away, it’s a saving and can even potentially even give you interest.
But you would still save even more money by not paying extra cash for X compared to 3, which can also produce you some interest!
Again, if you prefer an SUV or more luxury, X is the way to go. If you just want to come out with more cash at the end of the game, it would be 3.

 

[tesababa]

And answering the question about the sale time limit for claw back: its the same 5 years!!
So even though you get immediate tax deduction first year for X, you will have to keep it for 5 years or you will have to give the money back!!

 

[unholydoragon]

S
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).

Can you explain how the model X came out cheaper than the model 3? Even if you're in the 37% tax bracket, you save only 37k on the model x, and you end up paying around 63k - 7.5k = 56k.

If you do the same thing with the Model 3, you get 18k bonus 1st year deprecation, so that's 18k*0.37=6.6k and around 14k total with the 7.5k federal tax bracket. The total price you're paying for the fully loaded Performance Model 3 is 72k-14k= 58k, but then in subsequent years you still get deprecation that will eventually bring it down.

 

[unholydoragon]

Also, do you have commercial auto insurance? If you don't, then are you allowed to use personal auto insurance for a car that you use 100% commercially?

 

[MelaniainLA]

Can you explain how the model X came out cheaper than the model 3? Even if you're in the 37% tax bracket, you save only 37k on the model x, and you end up paying around 63k - 7.5k = 56k.

If you do the same thing with the Model 3, you get 18k bonus 1st year deprecation, so that's 18k*0.37=6.6k and around 14k total with the 7.5k federal tax bracket. The total price you're paying for the fully loaded Performance Model 3 is 72k-14k= 58k, but then in subsequent years you still get deprecation that will eventually bring it down.

Yes -- Model 3 is INELIGIBLE for this because it's <6000 pounds GVWR weight. There are limits on how much you can depreciate a regular (non heavy SUV) car, regardless of whether it's all at once or over time. You can check with accountant about your own situation. Moreover, in CA state (where I am), top tax rate is 13.3% and if you're a self-employed or small business owner you can be paying several % more for other taxes like social security and Medicare - adds up. Upfront deduction means you can also "lock in " a 100% or so write-off immediately, rather than having to keep business use high every single year that follows...

 

[unholydoragon]

Yes -- Model 3 is INELIGIBLE for this because it's <6000 pounds GVWR weight. There are limits on how much you can depreciate a regular (non heavy SUV) car, regardless of whether it's all at once or over time. You can check with accountant about your own situation. Moreover, in CA state (where I am), top tax rate is 13.3% and if you're a self-employed or small business owner you can be paying several % more for other taxes like social security and Medicare - adds up. Upfront deduction means you can also "lock in " a 100% or so write-off immediately, rather than having to keep business use high every single year that follows...

I see. Can you let us know the steps you took to make sure that the car is under your business? I assume you need to somehow make clear where your home office is and where your clients are. How did you do that?

I just put a deposit down and am filling out the form, I assume you put the registrant type as company. I can't seem to find a way to PM you, so maybe you can PM me details if you don't want to post everything

 

[MelaniainLA]

I see. Can you let us know the steps you took to make sure that the car is under your business? I assume you need to somehow make clear where your home office is and where your clients are. How did you do that?

I just put a deposit down and am filling out the form, I assume you put the registrant type as company. I can't seem to find a way to PM you, so maybe you can PM me details if you don't want to post everything

Ask your accountant actually. In my case, I’m a sole proprietor so car is registered under my name and locations of offices etc are “honor system” in that I have to document them if asked but tax forms don’t ask for that. Just starting and ending odometer and %business use.

 

[cpa]

Yes -- Model 3 is INELIGIBLE for this because it's <6000 pounds GVWR weight. There are limits on how much you can depreciate a regular (non heavy SUV) car, regardless of whether it's all at once or over time. You can check with accountant about your own situation. Moreover, in CA state (where I am), top tax rate is 13.3% and if you're a self-employed or small business owner you can be paying several % more for other taxes like social security and Medicare - adds up. Upfront deduction means you can also "lock in " a 100% or so write-off immediately, rather than having to keep business use high every single year that follows...

But not in California, Melania. California has not adopted any of the new federal depreciation rules. So, you are stuck at 12.3% for your California taxable income between $1,000,000 and $1,145,960, and the dread 13.3% on your taxable income in excess of $1,145,960. I gleaned earlier that you are married, filing jointly.

And a minor note--likely irrelevant to those of you on here--but you never know. The TCJA also instituted limitations for deducting business losses against other income and other business profits. These limitations are 500K MFJ and 250K for everybody else. So, single taxpayer A earns $275,000 in wages, $25,000 in dividend and capital gain income, a share of profits from a real estate partnership of $70,000, a share of losses from a second non-passive partnership of $40,000, and a self-employment loss in his new enterprise of $270,000, including writing off $110,000 on his Model X. So, his income before personal deductions will be limited to 275+25+70-250 since the losses (40+270) exceed 250K. Surprise! Income before personal deductions is $120,000, not $60,000. The excess losses are carried over to future years as an NOL, so all is not lost.

Like a lot of things with the Internal Revenue Code that apply to a select group of taxpayers, ya gotta watch where you step before you plant your foot.

Don't say you weren't warned.

 

[Uncle Paul]

Since everyone's tax situation is different, it is prudent to have your tax person calculate what your individual tax ramifications would be if your are eligible for the Section 179 deductions.

I had a big year and was deciding between getting solar or a Model X or both. CPA said to get the X because the Solar tax credits could not be rolled over into future years. The X gave me just the deductions I needed at that time.

You need to determine for yourself where the deductions make the best sen$e.