Buy vs lease

[Jeffruby]

Tesla gonna be my work vehicle and I have a question about deductions if I purchase (or finance) vehicle.

I have to ask my accountant but does anyone here know if besides the roughly 10k I can deduct for depriciation over 3 years, can I also deduct the losses in addition to the 10 K depreciation I already deducted? So if car is 100 K and I sell it for 50 K Can I overall deduct 10K+ 40k=50k?

 

[Chris Naps]

Tesla gonna be my work vehicle and I have a question about deductions if I purchase (or finance) vehicle.

I have to ask my accountant but does anyone here know if besides the roughly 10k I can deduct for depriciation over 3 years, can I also deduct the losses in addition to the 10 K depreciation I already deducted? So if car is 100 K and I sell it for 50 K Can I overall deduct 10K+ 40k=50k?

I am not an accountant, but I would say no.

Reason: If you were able to deduct the car for its value of sale, then that would mean everyone would sell their car for less than market value to gain a profit.

After your car is purchased you are not guaranteed a certain price.. A material is only worth what a buyer is willing to purchase it for.

 

[Jeffruby]

Chris,

Thanks for the response.

If I sold the car for 30 K (instead of 50), yes I would have an extra 20k in deduction however I would lose 20k in the sale. The 20k deduction is only worth approx 8k in cash savings....

 

[Alysashley79]

Tesla gonna be my work vehicle and I have a question about deductions if I purchase (or finance) vehicle.

I have to ask my accountant but does anyone here know if besides the roughly 10k I can deduct for depriciation over 3 years, can I also deduct the losses in addition to the 10 K depreciation I already deducted? So if car is 100 K and I sell it for 50 K Can I overall deduct 10K+ 40k=50k?

you cannot. Just went through this for our business. Cheaper car. That's why you get the depreciation each year over the next three years.

When you do your taxes the year you sell your vehicle the govt wants to know roughly how much the car was worth. And how much you sold it forestsforests. (Please note I am not an accountant just stating what I have been through)

 

[neroden]

Tesla gonna be my work vehicle and I have a question about deductions if I purchase (or finance) vehicle.

I have to ask my accountant but does anyone here know if besides the roughly 10k I can deduct for depriciation over 3 years, can I also deduct the losses in addition to the 10 K depreciation I already deducted? So if car is 100 K and I sell it for 50 K Can I overall deduct 10K+ 40k=50k?

Not an accountant, but from some stuff I've done... I think the answer is basically yes *if* the car is 100% a work vehicle (never used for personal purposes). Probably not if the car is used for personal purposes too, but I've never looked into that.

The general rule for "depreciable property" which is also a "capital asset" is that any depreciation claimed on your tax returns reduces the cost basis of the vehicle when you sell it. I don't know if there are any special rules for 100%-work-vehicle cars, but I think there aren't.

So if it's strictly and 100% your work vehicle, and you buy it for 80K (after the electric car tax credit) and sell it (on the open market at fair value) for 50K, you would end up with a total business deduction over the life of the car of 30K. Period. Some of this will be "depreciation" spread over several years and some of it will be "capital loss" at the end. But it adds up to the same amount either way.

Worth noting: you do have to deduct the $7500 electric car tax credit, and any similar tax credits, from the cost basis of the car.

If the car is only *partly* used for work, I believe the IRS has much, much stricter rules and disallows a whole lot of stuff which you could deduct if the car was *strictly* your work vehicle, but I've never messed around with that.

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To be clear on the accounting principles involved, depreciation is *supposed* to accurately reflect the decline in the value of the car. To the extent that you realize a capital gain or capital loss, it's because your depreciation was "wrong", a bad estimate.

So if you buy the (100% business use) car for $80,000, claim depreciation for three years at $10,000/year, and then sell the car for $55,000, you have a *capital gain* of $5000 and will be taxed on it. I think there's actuallly some rule that it gets taxed at full rates (no capital gains tax break) too, though I may be wrong about that.

I'm not an accountant, but the rules seemed pretty straightforward the last time they were explained to me.

 

[jerry33]

If the car is only *partly* used for work, I believe the IRS has much, much stricter rules and disallows a whole lot of stuff which you could deduct if the car was *strictly* your work vehicle, but I've never messed around with that.

If it's used partly for work, you keep a log of the business miles traveled and claim them as an expense. It's straight forward as long as you have good records. You can't combine this with any depreciation because the amount includes that.

• 56 cents per mile for business miles driven
• 23.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

So assuming the car is $100K, you keep it for five years, the IRS allowance doesn't change, electricity cost is $2K per year (a generous number), maintenance and warranty is $1K, and you sell it for $30K (to pick a number).

100K-30K=70K/5 yr = 14K + 2K + 1K = 17K per year cost / $0.56 = 30357.14. Means it takes 30K business miles per year to deduct the full amount. A more realistic scenario is that you drive 5K to 10K miles per year for business so you get 5K|10K miles * $.056 * 5 years = $14K to $28K deduction ($4K to $9K actual money). Should go a long way to paying for solar.

 

[FlasherZ]

Just to add to Jerry's comments, you can choose one of two methods to expense a car. The first is the 56.5 cents per business mile deduction -- keep a log. The only other expense you can claim under this method is interest expense on the financing you used to purchase the vehicle, and then there are some limitations.

You *can* use the "actual expenses" method if you don't use the mileage method, but it has some pretty significant limitations... your depreciation schedule is going to be 10 years or more under this method, though, because of the limits of depreciation (section 179 + normal depreciation + bonus depreciation is limited to $11k or so, and if you take bonus depreciation there can be state limits - Illinois, for example, doesn't recognize the federal bonus depreciation so it can force you to maintain dual depreciation schedules). In this case, you can expense everything but the capital asset which much be depreciated.

I'm guessing most Model S business purchasers will use either the mileage deduction (because at 56.5 cents per mile, model S is much less expensive to operate) or will use actual expenses method under a lease arrangement (because lease payments are expensed, not subject to capital depreciation limits).

As always, contact your own tax advisor. My knowledge is based upon being the son of an enrolled agent before the IRS.