Model X IRS 100% Deduction “Hummer Loophole” - 2018 Edition

[pkodali]

It actually ended yesterday for me. One the many locations where Sunday automobile sales are prohibited by law. Go figure!

Couldn't you order online though?

 

[jclark72]

I really appreciate everyone's insight and knowledge regarding this subject. One question I have is lets assume in year one (2018) you take the 100% depreciation because you used your MX 100% for business in that year. However, years 2-5 your business usage drops down to 55%. Do you have to report the 45% personal use as a fringe benefit or simply as long as you are using it more that 50% you are good?

Thanks in advance.

 

[Uncle Paul]

It was depreciated in the year you placed it in service for your business. What happens after that first year has no effect.
If you sell it before year 5 you will recapture some of the accelerated depreciation.

 

[mongo]

@jclark72
Staying above 50% keeps you in the deductible zone.

It was depreciated in the year you placed it in service for your business. What happens after that first year has no effect.
If you sell it before year 5 you will recapture some of the accelerated depreciation.

You have to have >50% business use or else it goes to personal use, and you have to pay back the depreciation.

Regardless of when you sell, you have to claim the excess depreciation i.e. the sale price as income. (Basis is zero after 100% depreciation, so it's all profit beyond allowed expenses).
Publication 463 (2017), Travel, Entertainment, Gift, and Car Expenses | Internal Revenue Service

Qualified business use 50% or less in a later year.

If you use your car more than 50% in qualified business use in the tax year it is placed in service but the business use drops to 50% or less in a later year, you can no longer use an accelerated depreciation method for that car.

For the year the business use drops to 50% or less and all later years in the recovery period, you must use the straight line depreciation method over a 5-year recovery period. In addition, for the year your business use drops to 50% or less, you must recapture (include in your gross income) any excess depreciation (discussed later). You also increase the adjusted basis of your car by the same amount.

Example.

In June 2014, you purchased a car for exclusive use in your business. You met the more-than-50%-use test for the first 3 years of the recovery period (2014 through 2016) but failed to meet it in the fourth year (2017). You determine your depreciation for 2017 using 20% (from column (c) of Table 4-1). You also will have to determine and include in your gross income any excess depreciation, discussed next.

Excess depreciation.

You must include any excess depreciation in your gross income and add it to your car's adjusted basis for the first tax year in which you don’t use the car more than 50% in qualified business use. Use Form 4797, Sales of Business Property, to figure and report the excess depreciation in your gross income.

Excess depreciation is:

1. The amount of the depreciation deductions allowable for the car (including any section 179 deduction claimed and any special depreciation allowance claimed) for tax years in which you used the car more than 50% in qualified business use, minus
   
   
2. The amount of the depreciation deductions that would have been allowable for those years if you hadn’t used the car more than 50% in qualified business use for the year you placed it in service. This means the amount of depreciation figured using the straight line method.
   

Disposition of a Car
If you dispose of your car, you may have a taxable gain or a deductible loss. The portion of any gain that is due to depreciation (including any section 179 deduction, clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), and special depreciation allowance) that you claimed on the car will be treated as ordinary income. However, you may not have to recognize a gain or loss if you dispose of the car because of a casualty, theft, or trade-in.

This section gives some general information about dispositions of cars. For information on how to report the disposition of your car, see Pub. 544.

 

[otamobile]

Hi all!! Im new to the Forum, and soon to be new to the Tesla Family!

I wanted to start by thanking MelaniainLA and CPA. Both were super helpful.

I fell like I understand the issue, and the way to handle it, however, I want to clarify my position before I move forward.

I am a Real Estate agent in Orange County, along with being an active day trader. I do NOT have an LLC, I file Jointly as a married man (with 2 kids). Most of my money does not come from Real Estate (at least not this year), however, I would use the MX primarily 50-100% ( If needed) for my Real Estate position.

I will give "rough" numbers to help explain my position, in hopes that someone out there will be able to give me advice:

This year I will have made about $75,000 in Real Estate commission through Coldwell Banker. In addition, I made some good investments, and will make about $300,000 on a few stocks that I was lucky enough to buy at the right time. Am I eligible for Sec 179? I heard that the joint maximum earnings were $300,000...Is that true? Do you need to have an LLC or S Corp? Or can I just file as an individual or married man? If my taxable income (with my wifes teaching salary) is $425,000-$450,000 and I owe roughly 175,000 in taxes, and purchase a $110,000 Model X, does that lower my taxable income, or do I simply owe $65,000 for the year in question?

I could easily ask 100 more questions, however, this is the gist of it.

Any help would be GREATLY appreciated (perhaps with stock tips as gratitude).

Thanks again, and please do NOT hesitate to post here, pm, or email me.

Thanks so much!

 

[rjdoc74]

I can’t answer your questions, only YOUR CPA can. But dude, supporting wife and 2 kids day trading, wow, good for you!

 

[otamobile]

Hey Thanks! Unfortunatley my CPA is out of town until October...Yikes!

Day trading was a hobby, until Canada decided to make millionaires out of anyone who had a couple hundred grand to "gamble" with.

 

[rjdoc74]

Hey! I have a few hundred grand to gamble with. What do I do???

 

[Raechris]

Hi all!! Im new to the Forum, and soon to be new to the Tesla Family!

I wanted to start by thanking MelaniainLA and CPA. Both were super helpful.

I fell like I understand the issue, and the way to handle it, however, I want to clarify my position before I move forward.

I am a Real Estate agent in Orange County, along with being an active day trader. I do NOT have an LLC, I file Jointly as a married man (with 2 kids). Most of my money does not come from Real Estate (at least not this year), however, I would use the MX primarily 50-100% ( If needed) for my Real Estate position.

I will give "rough" numbers to help explain my position, in hopes that someone out there will be able to give me advice:

This year I will have made about $75,000 in Real Estate commission through Coldwell Banker. In addition, I made some good investments, and will make about $300,000 on a few stocks that I was lucky enough to buy at the right time. Am I eligible for Sec 179? I heard that the joint maximum earnings were $300,000...Is that true? Do you need to have an LLC or S Corp? Or can I just file as an individual or married man? If my taxable income (with my wifes teaching salary) is $425,000-$450,000 and I owe roughly 175,000 in taxes, and purchase a $110,000 Model X, does that lower my taxable income, or do I simply owe $65,000 for the year in question?

I could easily ask 100 more questions, however, this is the gist of it.

Any help would be GREATLY appreciated (perhaps with stock tips as gratitude).

Thanks again, and please do NOT hesitate to post here, pm, or email me.

Thanks so much!

Well - you are mixing up several different code sections and it would take too much space to explain. If you spend time on TurboTax.com irs.gov and search sort and read articles you can get to the answers yourself. Otherwise get a new CPA or wait til October. Short answer is you will owe much more than 65k esp if short term gains on investments

 

[frebay]

My credit union is refusing to put this under my LLC, anyone have a lender that was able to do this with a decent interest rate?

 

[mongo]

My credit union is refusing to put this under my LLC, anyone have a lender that was able to do this with a decent interest rate?

Will they give the loan personally? Do you need it listed under LLC due to type?

 

[jclark72]

Will they give the loan personally? Do you need it listed under LLC due to type?

I just got an X and did it through Tesla which used US Bank at 3.49%. Me personally and my business are both listed on the note and on title.

 

[mongo]

I just got an X and did it through Tesla which used US Bank at 3.49%. Me personally and my business are both listed on the note and on title.

Congratulations!

 

[SBR]

very helpful thread, glad to see others taking advantage of this as well. I had done this in the past with Suburban and an Infinity QX56.

i'm picking up my 4th tesla (model x) and just realized one thing: do i need to title it under the business name? or personal name is fine. i couldn't find a straight forward answer if this matters at all. goal is to use it 100% for business. if it matters the business i plan to write this off is a 2 owner LLC.

thanks!

 

[cdninnyc]

very helpful thread, glad to see others taking advantage of this as well. I had done this in the past with Suburban and an Infinity QX56.

i'm picking up my 4th tesla (model x) and just realized one thing: do i need to title it under the business name? or personal name is fine. i couldn't find a straight forward answer if this matters at all. goal is to use it 100% for business. if it matters the business i plan to write this off is a 2 owner LLC.

thanks!

My accountant recommended that the title be in the business name.
Tesla titled mine to both my name and the business. Financed through US Bank, both names on loan. Registered and insured only to personal. Some people here have mentioned registering to both and including a Ltd business use rider; my insurer would not do that on my policy. My accountant said it didn’t matter.

 

[itvseverybody]

I am currently a Delivery Consultant that works for a company. About 75% of the time I work from home. I am planning on opening a IT consultation business, the Tesla X would make sense with the delivery of servers that would potentially happen. The problem being I would unlikely make a significant amount from now until the end of the year and obviously it would be nice to take advantage of the $7500 credit. So I guess my questions would be the following:

1. Can the credit apply to through the typical 1040.
2. Should the business be opened under a Sole Proprietorship
3. Can I utilize Turo and Uber Select under the Sole Proprietorship and towards the 50% utilization as long as the miles are tracked or would the business have to be specifically dedicated to RideSharing.

 

[Naonak]

Does this apply if we bought the Model X used? Or only to new vehicles? Maybe I need to go buy another Model X?

 

[bmms8]

Does this apply if we bought the Model X used? Or only to new vehicles? Maybe I need to go buy another Model X?

Used works too

 

[ithinkmac]

Section 179 Information for Businesses | Section179.Org

 

[harshmodh]

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!

Hi Melanian,
Ours is a 2 partners S-Corp and both of us are W2 of the same company. Both of us are planning to buy Model X. What is the best way to title them? Should we lease them or finance them thru company? Should we self-lease? How should we buy insurance for maximum tax benefits?
Respectfully,
Harsh Modh