Model 3 for business. 'Salvage value' or depreciation schedule for taxes?

[islack]

I'm using my M3 for business as self-employed and soon will need to decide if I want to do standard mileage deduction or actual-expenses method. Does anyone here use their model 3 for business? I need some tax insights.

Business Use of Vehicles - TurboTax Tax Tips & Videos

I'm unsure how the depreciation formula used by the IRS would be, if 'salvage value' of the car is needed to calculate the potential tax savings (vs. standard mileage)?

Say M3 was $50,000 ($56k with all sales taxes/fees) would the straight-line depreciation be like:

Year 1 - 11200$
Year 2 - 11200$
Year 3 - 11200$
Year 4 - 11200$
Year 5 - 11200$
total $56,000 depreciation deduction.

When the car is sold, the amount received by me would be taxed I presume as I had taken the depreciation on it?

Thanks... and before anyone says 'don't get tax advise from the internet' all I am looking is for some insights. I am of course will consult with a tax professional after I educate myself some by asking from folks with the experience on doing this as I am sure I am not the only one.

My goal is to maximize tax savings, as I do 1099 as a second gig on the side while on W2

 

[Ralbright]

Subscribed, as I’m interested as well.

 

[tneison]

I have a similar situation. One thing you would definitely want to look into if you're looking to maximizing first year tax benefits is the allowable first year bonus depreciation which was ~$18k for FY 2019. Then you would depreciate the new cost basis (purch price - bonus depreciation) over a 5-yr period I believe. When you sell the car you'll have to calc the difference (gain/loss) between your adjusted cost basis and sale price, then pay a tax on the gain (form 4797). If you claim your business use of the vehicle to be less than 100%, the depreciation amounts are cut back proportionately.

 

[Wnuk]

This is the first year that I have my M3 registered in the business name. I suggest you try to determine the mileage you drive and the rate for deducting mileage ( think last year was .57 cents) and see which way benefits you more.

In my situation I make out better deducting mileage than actual expenses. I drive nearly 25000 miles per year for business purposes though. Also ask yourself how long you typically keep a vehicle. If it’s greater than your depreciation timetable, you might be better off using the mileage deduction as you can take that every year you own the vehicle. Once it’s paid off, you still get the benefit of mileage deduction without all the expense.

 

[Hoopoe]

While you can sometimes get a larger amount of depreciation by using the standard and especially bonus (18,000) in the first year consider the after tax implications of regular mileage based deductions. You’ll have to pay tax on the depreciated price - sales price as taxable income except if you have used the per mile deduction method.

If you plan to drive a lot for business and/or keep the car for a while and let the miles slowly pile up then the mileage method is likely best. If you can buy the car in December and drive 100% for business for even a few days or weeks the 18k first year bonus depreciation is a powerful up front deduction (and what I used), especially when combined with a high income tax year. If you give away the car at the end of the use period (ie to a parent) and it’s value is under the gift tax exclusion limit then you’ll never have the back end tax bite, but also no money from the sale either.

I plan to use the model 3 for several years and then give to my parents who need a new car. I’ll then likely get a refreshed model X with the 100% first year 179 deduction.

 

[Uncle Paul]

Some business owners have chosen to purchase model X due to the special Section 179 depreciation schedules inherent in heavier SUVs. They can fully depreciate the entire purchase price the year it is put into service.
In other words, if you spend $100,000 on the car, that is the amount you are allowed to depreciate the first year. For many with large profits that can make the X much less net expensive than any other Tesla.