Agreed - non-commercial insurance is VERY good. Commercial insurance is appropriate for delivery companies and the such... not individuals using it for transport of themselves.
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Model X IRS 100% Deduction “Hummer Loophole” - 2018 Edition
- Thread starter MelaniainLA
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- Model X section 179 tax break
Agreed - non-commercial insurance is VERY good. Commercial insurance is appropriate for delivery companies and the such... not individuals using it for transport of themselves.
Uncle Paul
Well-Known Member
For me the X is almost the perfect business vehicle. I am in the toner cartridge recycling business. I sell a green alternative to buying a new toner cartridge, using it once and tossing it into a landfull where it will stay forever.
My cartridges are made in the USA, so it helps with our balance of trade, and my employees are all legal Americans, so ther is always that.
The car is great for carrying a full days worth of deliveries. It is quiet for me to drive around and so very comfortable. It's autopilot takes some of the drugery away from the longer stretches. The stereo is great and does not fade in and out like in my Jeep. Customers are interested in talking about the car, and I often give them rides. Sometimes I need to take a printer back to the shop for servicing, and the hatch back makes loading and unloading very easy. Much easier on my back than lowering down into a regular trunk.
Savings on gas goes a long way in justifying the price I paid, but the tax savings make it a financial no brainer.
I can drive it for 5 or 6 years and it should be more trouble free than an ICE. I can park it in the Sun and come back to a cool car on those long hot days.
As a small business owner I appreciate the help I get on this from the tax man. On a good year I pay substantail taxes, on bad years...not so much.
Competition from asian producers makes my business tougher than ever, but this tax break has been really appreciated.
My cartridges are made in the USA, so it helps with our balance of trade, and my employees are all legal Americans, so ther is always that.
The car is great for carrying a full days worth of deliveries. It is quiet for me to drive around and so very comfortable. It's autopilot takes some of the drugery away from the longer stretches. The stereo is great and does not fade in and out like in my Jeep. Customers are interested in talking about the car, and I often give them rides. Sometimes I need to take a printer back to the shop for servicing, and the hatch back makes loading and unloading very easy. Much easier on my back than lowering down into a regular trunk.
Savings on gas goes a long way in justifying the price I paid, but the tax savings make it a financial no brainer.
I can drive it for 5 or 6 years and it should be more trouble free than an ICE. I can park it in the Sun and come back to a cool car on those long hot days.
As a small business owner I appreciate the help I get on this from the tax man. On a good year I pay substantail taxes, on bad years...not so much.
Competition from asian producers makes my business tougher than ever, but this tax break has been really appreciated.
Very informative. Thank you for sharing. My question is how do you document and keep records or the mileage for business vs personal?
I’m creating a new thread on this issue since the old thread was about 2017 rules and got confusing. Since there’s been some confusion around this and I just typed the following up for someone else in a PM, thought I’d clarify the new rules under the Trump Tax Law that would enable up to 100% immediate tax deduction for a Model X — See below and if you want to reach me personally with any questions PM me or my email is hdhemmati at gmail dotcom:
I was totally clueless about this 179 deduction and bonus business depreciation business for heavy SUVs (>6000 pounds GVWR or “Hummer Loophole”). Then my uncle did it and then I discovered some friends did it too. I hired a tax attorney to give me an official opinion (paid her $150 for 30 min time on phone) so that I would have this documented and protect myself in case of issues down the line and prove that I did my diligence on it.
Basically, under the new Trump tax plan (Effective late September 2017 and valid through at least 2018), you get to deduct up to 100% of the Model X value off your taxes as a proportion of its BUSINESS use in the year you buy it without needing to depreciate over several years as before. For example, say you buy a Model X in May, and you use it 75% for professional work (consulting, wedding photographer, private doc, whatever you do) and 25% personal, and the car cost $100k including tax, you deduct $75k off your federal taxes (and an appropriate proportion off state based on your state rules - you have to depreciate the state component over 5 years in my state of CA) -- you might report a loss but that way you get $$ back year of the following years. The business to personal ratio has to be DOCUMENTED and believable and must exceed 50% to trigger. You can't say easily 100% unless you did what I did: I bought it 2nd to last week of December. I kept my old car until Jan 2. I drove the X ONLY for business and then left it alone in my garage until Jan 1. That way, I got to say 100% business! $100k car, after tax, ended up costing me $50k. Not bad, eh? You MUST have documentation in the form of a mileage log (handwritten) ideally supported by odometer readings using Tesla Service records. The IRS can (and often does) request the documentation at audit time.
Math was as follows:
Car after tax: $100,000
Section 179 Deduction: $25,000 (heavy vehicles only)
100% bonus depreciation: $100,000-$25,000 = $75,000 (new Trump tax plan effective late September 2017 and beyond; previously it was 50% bonus, which meant $37500, not $75,000)
Total write-off from federal taxes: $25,000 + $75,000 = $100,000 (100% of the car)
The key, therefore, is to keep business use to a maximum level in 2018 so you get the maximal deduction upfront.
I do my own taxes btw... This was relatively easy to do in TurboTax but some accountants aren’t yet up to speed on the Trump tax changes. You can get a loan and pay the loan off over time, but take the tax deduction RIGHT away. So I have a loan from tesla at 1.49% interest and I deduct the interest as well!! But the PRINCIPAL (the cost of the car + tax) got written off immediately!
Moreover, through all/most of 2018 you'll get $7500 off your taxes from federal government for having an EV, ON TOP of the 100% immediate tax deduction, making it even cheaper. That is on top of any state and local incentives you might be eligible for ($2500 from CA state and $500 from LA City for us). And if you order through a referral link from an existing Tesla owner, you get free lifetime supercharging access.
Happy to discuss with anyone here in more depth (PM or email me) -- all this depends on your tax situation etc so might be worthwhile confirming with accountant (if you have one) re your personal situation before taking the plunge. For what it's worth, I'm VERY happy I did! You'll LOVE your car as well. A lot of people on Tesla forums and TMC bent over backwards to help me make purchase decisions (battery, colors, options, etc) and we are all here to help you with your choices as well.
Good luck!
Glad you asked. You either get an iPhone or Android app like MileIQ: Mileage Tracking App | Automatic, Easy, Smart Mileage Log | MileIQ which tracks your miles in the app automatically and you tell it whether it’s business or personal and if business what the reason was (name of client, destination for meeting etc) OR
You get a written mileage log like this at Amazon:
Mileage Log Book: Amazon.com in which you hand-write the same log.
It’s on the honor system but your miles have to add up to ending odometer miles for the year. I’m
Sure people fudge numbers but you’re not supposed to. On your taxes it asks you whether you have a mileage log, what starting and ending odometer miles are, and what % of those total miles are business. Easy.
Happy to discuss...
cpa
Active Member
Yeah, most of us are. Funny business this income tax stuff. The last thing any decent accountant wants to happen to one of his clients is to hear about an "oops."
It is easier to pass any audit queries if a business asset is purchased and registered in the name of a business (sole proprietorship, partnership, LLC, S Corp) and recorded on the books that way. Other methods generally require a lot more questioning from the examiner. And examiners are evaluated by cases closed, not by additional tax revenue collected. (True!)
Seriously, the more that a business owner can do to separate his personal side from his business side, the better. After 30+ years of preparing business returns, it is all too common for business owners to use business funds for personal expenses (or vice versa), loans, etc., without any documentation, minutes, or promissory notes to reflect the transactions. This is where taxpayers get hosed. They had no malicious intent, but did not bother to separate the entities sufficiently or keep accurate enough records to support their actions.
I've been investigating the 179 bonus depreciation for the MX since I read about the new tax laws. I've had some questions and probably very simplistic, hence...positing here!
We have an LLC where the wife is the owner and active partner. I'm on there as a passive partner. We are not doing pass through income. The wife generates a Schedule K every year for her and myself on which we file our 1040. Revenue is small, in the thousands or in a good year, 10's of thousands.
If we purchase a 100k Model X, have a typical year of 10k in profit (just using those #'s for easy math), I understand we can take 10k of the deduction to show 0 profit for the LLC. Can I show a loss of 90k (10k profit - 100k expense) for the LLC? I've always been of the understanding I can only deduct up to the amount of profit/gain that we show on the books. In my conservative and non-CPA lens, this seems like a huge red flag if so.
Maybe we should change to passthrough income type of corporation and be able to take it against my individual 1040 if possible?
Gotta love tax law.....
We have an LLC where the wife is the owner and active partner. I'm on there as a passive partner. We are not doing pass through income. The wife generates a Schedule K every year for her and myself on which we file our 1040. Revenue is small, in the thousands or in a good year, 10's of thousands.
If we purchase a 100k Model X, have a typical year of 10k in profit (just using those #'s for easy math), I understand we can take 10k of the deduction to show 0 profit for the LLC. Can I show a loss of 90k (10k profit - 100k expense) for the LLC? I've always been of the understanding I can only deduct up to the amount of profit/gain that we show on the books. In my conservative and non-CPA lens, this seems like a huge red flag if so.
Maybe we should change to passthrough income type of corporation and be able to take it against my individual 1040 if possible?
Gotta love tax law.....
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Great questions - for this, I would definitely consult with an actual CPA who can assess your personal situation rather than relying on (almost entirely with the exception of a couple CPA members) non-experts on here who mean well but don't understand the nuances of the tax code. You should avoid making an expensive mistake. With that caveat, my non-professional opinion is that you could report a $90k loss which would carry over into subsequent years. Sure it would be a red flag and sure you would HAVE to demonstrate the % business use in a well-documented/justifiable/defensible manner. If it's pass-through, could be a lot easier in many ways. That said, please please ask for help as this is NOT a "simplistic" question at all. Happy to help in any way.
cpa
Active Member
Let me add further clarification to the never-a-dull-moment of income taxation.
First off, the deduction for depreciation hangs out in code sections 167 and 168 and the regulations thereunder. This is rightly called depreciation expense on your tax returns.
Secondly, and equally important, is code section 179. However, code section 179 is not depreciation. It is an affirmative election made by the taxpayer at the entity level (read: sole proprietor, partnership, S Corp, C Corp). It is a deduction, but it is not a depreciation deduction. This is a distinction with a difference. You claim your deduction for section 179 on the same form that is used to claim ordinary depreciation under 167/168. Confusion reigns!
In general, the section 179 deduction cannot be used to reduce a profit from a business to a loss. In other words, your business profit before the section 179 deduction is $15,000. You bought some equipment for $25,000. You cannot deduct the entire $25,000 of cost of the equipment because that will throw your business profit into a loss. You would be limited to a $15,000 deduction with the balance carried over to the subsequent tax year. A quirk in the law allows the section 179 deduction to increase your loss, however, so if you already had a $5,000 net loss from your business, you would be able to increase your loss by the $25,000 equipment purchase.
I guess I am saying is since the Model X receives the 100% depreciation deduction, why screw around with section 179?
Net operating loss carryovers are tricky, and they are beyond the scope of discussing depreciation and section 179. If you anticipate having a loss from your husband-and-wife partnership, I strongly urge you to contact a competent professional well before the end of the year (like this summer) to understand how the rules work and how they would apply to your personal situation. As I wrote above, nobody likes surprises. And our Byzantine Internal Revenue Code is chock full of surprises once you drill down beyond wages and itemized deductions.
First off, the deduction for depreciation hangs out in code sections 167 and 168 and the regulations thereunder. This is rightly called depreciation expense on your tax returns.
Secondly, and equally important, is code section 179. However, code section 179 is not depreciation. It is an affirmative election made by the taxpayer at the entity level (read: sole proprietor, partnership, S Corp, C Corp). It is a deduction, but it is not a depreciation deduction. This is a distinction with a difference. You claim your deduction for section 179 on the same form that is used to claim ordinary depreciation under 167/168. Confusion reigns!
In general, the section 179 deduction cannot be used to reduce a profit from a business to a loss. In other words, your business profit before the section 179 deduction is $15,000. You bought some equipment for $25,000. You cannot deduct the entire $25,000 of cost of the equipment because that will throw your business profit into a loss. You would be limited to a $15,000 deduction with the balance carried over to the subsequent tax year. A quirk in the law allows the section 179 deduction to increase your loss, however, so if you already had a $5,000 net loss from your business, you would be able to increase your loss by the $25,000 equipment purchase.
I guess I am saying is since the Model X receives the 100% depreciation deduction, why screw around with section 179?
Net operating loss carryovers are tricky, and they are beyond the scope of discussing depreciation and section 179. If you anticipate having a loss from your husband-and-wife partnership, I strongly urge you to contact a competent professional well before the end of the year (like this summer) to understand how the rules work and how they would apply to your personal situation. As I wrote above, nobody likes surprises. And our Byzantine Internal Revenue Code is chock full of surprises once you drill down beyond wages and itemized deductions.
cpa
Active Member
Biker, your explanation makes no sense from a tax point of view. You assert that you and your wife are partners. Therefore, you would file a form 1065 "US Partnership Return of Income," each year which would generate a Schedule K-1 for each of you. By statute and by definition, this is a pass-through entity, and you report the profit or loss on Schedule E, page 2. Yet you claim "We are not doing pass through income." You are contradicting yourself.
I assume that you elected your LLC to be taxed as a partnership under the "check the box" rules the very first year.
Finally, I do not know Utah law. I do know that Utah is a common law, not community property state. The IRS requires single-member LLCs to file a Schedule C because the form 1065 is for partnerships, not sole proprietors who elect to form LLCs. For federal tax purposes, a single-member LLC is a disregarded entity.
Sorry, but you opened up Pandora's box with your introduction. I am still trying to figure out how your wife and you report the income and deductions from her business since you are not using the pass-through entity schedule that is attached to your 1040.
HankLloydRight
No Roads
Biker, your explanation makes no sense from a tax point of view. You assert that you and your wife are partners. Therefore, you would file a form 1065 "US Partnership Return of Income," each year which would generate a Schedule K-1 for each of you. By statute and by definition, this is a pass-through entity, and you report the profit or loss on Schedule E, page 2. Yet you claim "We are not doing pass through income." You are contradicting yourself.
I assume that you elected your LLC to be taxed as a partnership under the "check the box" rules the very first year.
Finally, I do not know Utah law. I do know that Utah is a common law, not community property state. The IRS requires single-member LLCs to file a Schedule C because the form 1065 is for partnerships, not sole proprietors who elect to form LLCs. For federal tax purposes, a single-member LLC is a disregarded entity.
Sorry, but you opened up Pandora's box with your introduction. I am still trying to figure out how your wife and you report the income and deductions from her business since you are not using the pass-through entity schedule that is attached to your 1040.
Are a married couple as partners in an LLC considered a 'single member' LLC?
I have two LLCs. One is a single member LLC which flows directly through to my Schedule C as you explain. The other is a two-member LLC (not my wife) and we file 1065 partnership return and produce K-1s for each of us for our personal returns, which sounds exactly like what @UTmtnbiker is doing.
So if a husband and wife are both members of an LLC (and therefore not really a 'single member' LLC) wouldn't what @UTmtnbiker is doing correct? What if they were just partners in the LLC filing 1065, and then got married? Do they have to dissolve the partnership LLC and create a new single-member LLC with pass-though income, or at least change the tax-reporting status (if that's even possible after the fact)?
cpa
Active Member
Just a guess. The Section 179 deduction has been around since the '86 Act. It has always been available for both new and used equipment purchases. Over the years Congress tweaked the maximum amount that was available for immediate deduction. This was the primary method for taxpayers to maximize their deductions on their business returns.
Then, comes along the special bonus depreciation rules in the '00s. Those rules were much more stringent at the beginning: The property had to be new, not used. In most years the taxpayer could take 50% additional first-year depreciation, then there was a year or two when the bonus was 100% (recalling from memory.) Under the 50% limitation, a taxpayer could combine the Section 179 deduction with the 50% bonus depreciation the first year AND take the ordinary depreciation on the adjusted basis. For example, a taxpayer buys a $1,000,000 machine. The Section 179 maximum is $200,000. The taxpayer would utilize $200,000 of Section 179, then (.5)(1,000,000-200,000), or $400,000 of bonus depreciation, then depreciate the adjusted basis of ($1,000,000-200,000-400,000), or $400,000 over the 7-year MACRS life, or another 14.29% if eligible for the half-year convention, or another $57,143 of depreciation expense.
I think this above thinking is a residual from those days. The "new and improved" tax law renders these ideas moot for the most part.
cpa
Active Member
Bill, I believe that a husband-and-wife who reside in a community property state and start a partnership/LLC with community funds would be able to file as a disregarded entity and file one Schedule C, then split the income for SE tax purposes. I have done this in the past without issue. (You live in Connecticut, so community property is not on the radar.) The Internal Revenue Code generally defers to state law in most matters, and it does thus for community property states like California. Utah is not a community property state.
In the 41 common law states, I would hazard a guess not. I would file a 1065. In community property states where one spouse contributed the capital from separate property and allowed the spouse to be an equal partner, I would file a 1065, but their capital accounts would not equal each other. (Capital accounts are super important in my opinion.) If two unmarried individuals form a partnership then get married five years later, I would file the 1065 unless there is a provision in state law to be able to unwind the separate ownership and implement community property ownership through the appropriate agency, and the taxpayers chose to do so. But I am not a lawyer.
Then we have the morass with the Section 469 rules which make my hair hurt just thinking about them.
The original post was confusing to me because he said that he did not file as a pass-through entity, yet they received a "Schedule K" [sic].
HankLloydRight
No Roads
Assuming he meant K-1, it makes sense to me. "Pass-through" would mean a disregarded entity and filing the LLC on a Schedule C. They're clearly not doing that, so it's a 1065+K-1, which isn't "pass-through".
That's technically incorrect Hank.
Pass-through income simply means it's not taxed at the entity level, and the income and deductions "pass through" to be taxed at the individual taxpayer level. There are many pass through entity types, including disregarded entities, partnerships of various legal structures, S-Corps, etc. Both a disregarded entity flowing to a 1040, and a 1065/partner who receives a K-1 are pass-through.
HankLloydRight
No Roads
Appreciate the clarifications and discussion. Like I said, not a CPA or tax expert by any means. We do each get a K-1 (Schedule K, sic) which we then report on our 1040 (joint married filing). I have been under the impression that this was not pass-thru income, but won't say with certainty that it is or is not. I just do what TurboTax tells me to do.... Obviously if we went down this route, it would be more CPAm, less TurboTax due to the complexity (at least in my mind).
Regardless, the thought was to be able to take the Sec. 173/167/168 deduction and go in to a loss position, if allowable but doubtful, on our LLC as our profit would not be larger than the deduction.
Obviously if we went down this route, it would be more CPAm, less TurboTax due to the complexity (at least in my mind).Regardless, the thought was to be able to take the Sec. 173/167/168 deduction and go in to a loss position, if allowable but doubtful, on our LLC as our profit would not be larger than the deduction.
Am I understanding it correctly and now we do not need to buy a >6000lb SUV to be able to depreciate the whole thing in year 1 and we can do the same with Model 3?
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