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

[posity]

This tax discussion is incredibly helpful for me. What I think I understood from my accountant is that it could be worth my while to carefully ensure and faithfully log that our sole proprietorship business is using 100% of the new Model X until the end of the year (rather than my S Corp). Then we'll be able to possibly use the 179/168K, but it is all so complicated, as you indicated, that we won't really know whether the 179/168K is worthwhile until he runs multiple scenarios when he calculates the taxes. In either case, if we are carefully logging all business miles, the standard mileage rate has a reasonable likelihood of being the best approach - but, as you said, it makes me a pretty boring candidate for any bar-room discussions in that case.

I'm an engineer. I can build some pretty darn complex electronic circuits and design machines that I think are fun to watch operate, similar to the automation that are being used to build the Teslas. It's why I'm so excited to buy a Model X - and why I feel like I'm 'doing the right thing' by supporting a cause that really does have a chance to make the world better.

When I'm around a CPA/accountant that understands this incredibly complex tax stuff, I am in total awe of that breadth of knowledge. Just like when I start explaining electrical theory/practice to people and I watch their eyes glaze over, I know I get that exact same look when my accountant starts explaining taxes to me. Thanks for taking the time to explain these ridiculously complex subjects in (somewhat) simple terms.

 

[cpa]

I'm an engineer. I can build some pretty darn complex electronic circuits and design machines that I think are fun to watch operate, similar to the automation that are being used to build the Teslas. It's why I'm so excited to buy a Model X - and why I feel like I'm 'doing the right thing' by supporting a cause that really does have a chance to make the world better.

When I'm around a CPA/accountant that understands this incredibly complex tax stuff, I am in total awe of that breadth of knowledge. Just like when I start explaining electrical theory/practice to people and I watch their eyes glaze over, I know I get that exact same look when my accountant starts explaining taxes to me. Thanks for taking the time to explain these ridiculously complex subjects in (somewhat) simple terms.

You see, you work in a world with the immutable laws of physics and related subjects. You just cannot design a perpetual motion machine. You cannot turn a sow's ear into a silk purse.

Me, I work in a world whose laws are man-made. They are purely conceptual in nature, and those concepts must be applied to real life situations.

Your engineering results will always be consistent and constant if the inputs and variables remain identical. But for me, people are the wild card. And that is the challenge for us. No two people do things identically. No two companies in the same industry do things identically. An approach that works for you might not work for your friend, and the reasons could have nothing to do with money or taxes. Those reasons could be more emotional than pragmatic. Sometimes I feel as though I am more psychologist than accountant.

 

[Vinc]

Fantastic thread! So much good information here.

I just wanted to point out something, and please correct me if I am wrong. The car does not have to be registered under a business name if the owner is self employed but unincorporated. In that case, it just need to be proven that the vehicle is used for business.

That is my situation. I am freelance filmmaker and used to have an LLC but decided to close it a while back and now I am just registered as DBA. I first heard about the deduction through the Freelancers Union, and they were explaining it in this context.

I was seriously considering taking advantage of the deduction, since my current lease is about to expire, but I will probably go with a Model 3. Adding the cost of a MX to the rest of my deductions this year would likely put me into loss. Bummer.

 

[frebay]

Just talked to my CPA about this. She said 179 is just an accelerated depreciation, so you take it all in the first year. If it was normal, you depreciate it over x amount of years. She also said it used to be a red flag for audit, but not anymore bc service vehicles are getting larger. I own a small boutique hotel, so I'm going to use it to shuttle guests around, and she said shouldn't be a problem.

 

[BATT_MBL]

Saw this thread with the new tax laws and you wanted to offer a scenario to get some feedback and guidance....

I'm a work at home employee for a company earring $150k / year.

This year, my wife and I started an online art prints store. She has a daily commute to gather supplies and errands (paper, packing materials, ink, print shop, post office, etc.) this would be an average of 9k miles per year based on our recent sales activity or roughly 50-60% of our annual miles. Our online store is generating about $18-20k / month in revenue.

Not really sure the best route here but it sounds like I would be ok going with the 179. If thats the case, the taxable income between my employment and business earnings would be deducted by roughly half the cost of the MX (MX $100k - 50% personal use= $50k tax break?). This applies to used and new MX correct?

The other question is, while our business is going well, I'm not sure if it will continue at this monthly revenue pace (never know what the future holds) - which directly impacts our daily miles and subsequently the ratio of personal to business miles. What happens if we close the business or dip below 50% business use in 2019 and beyond?

Lastly, I've not heard about this 20% transparent deduction that was discussed in the thread. Can you give any insight? Would it apply to me?

Thanks!

 

[mongo]

Regarding depreciation recapture, my understanding from reading the EV tax credit is that it drops the basis by the $7,500 also.

Depending on your mileage and planned ownership period, going with the IRS mileage rate might work out better than depreciation (in the long run, who doesn't like canceling 80+ k of income)
.

 

[Raechris]

TurboTax handles this well and the 7500 credit is proportionately reduced (personal use) by the business percentage of use. The 179 deduction applies to the business use percentage of the car cost.
It is not just 6k pounds, the regulations have multipart test to determine if it is a “truck”. Complicated but a minivan can be a truck - got to love congress.

 

[phxsctsdle]

All this looks good for me. If I pull the trigger soon my deliver would be late August into my LLC. Any issue with only having a few month remaining in 2018 to get the full 2018 deduction?

For a few months i can keep 100% business use easily. Is the test keeping it over 50%?

When is the vehicle eligible to be liquidated/sold or no longer under usage tracking?

THANKS!

 

[BATT_MBL]

All this looks good for me. If I pull the trigger soon my deliver would be late August into my LLC. Any issue with only having a few month remaining in 2018 to get the full 2018 deduction?

For a few months i can keep 100% business use easily. Is the test keeping it over 50%?

When is the vehicle eligible to be liquidated/sold or no longer under usage tracking?

THANKS!

Great question, Id like to know this too.

 

[BATT_MBL]

Saw this thread with the new tax laws and you wanted to offer a scenario to get some feedback and guidance....

I'm a work at home employee for a company earring $150k / year.

This year, my wife and I started an online art prints store. She has a daily commute to gather supplies and errands (paper, packing materials, ink, print shop, post office, etc.) this would be an average of 9k miles per year based on our recent sales activity or roughly 50-60% of our annual miles. Our online store is generating about $18-20k / month in revenue.

Not really sure the best route here but it sounds like I would be ok going with the 179. If thats the case, the taxable income between my employment and business earnings would be deducted by roughly half the cost of the MX (MX $100k - 50% personal use= $50k tax break?). This applies to used and new MX correct?

The other question is, while our business is going well, I'm not sure if it will continue at this monthly revenue pace (never know what the future holds) - which directly impacts our daily miles and subsequently the ratio of personal to business miles. What happens if we close the business or dip below 50% business use in 2019 and beyond?

Lastly, I've not heard about this 20% transparent deduction that was discussed in the thread. Can you give any insight? Would it apply to me?

Thanks!

Any thoughts???

 

[phxsctsdle]

All this looks good for me. If I pull the trigger soon my deliver would be late August into my LLC. Any issue with only having a few month remaining in 2018 to get the full 2018 deduction?

For a few months i can keep 100% business use easily. Is the test keeping it over 50%?

When is the vehicle eligible to be liquidated/sold or no longer under usage tracking?

THANKS!

So as best as i can tell form research - there is 5 years to get the car off the company books.

As for getting the model X and realizing the 100% deduction in year 1 - there is still 5 year record keeping AND whether this vehicle is "ordinary and necessary" for the business use. The whole vehicle use could be disallowed.

 

[Vinc]

So as best as i can tell form research - there is 5 years to get the car off the company books.

As for getting the model X and realizing the 100% deduction in year 1 - there is still 5 year record keeping AND whether this vehicle is "ordinary and necessary" for the business use. The whole vehicle use could be disallowed.

Very correct. From what I have gathered, the IRS could potentially audit you 2-3 years from now and penalize if you are no longer tracking the use of the vehicle or no longer using it for business nearly as much as originally claimed.

 

[Vinc]

Any thoughts???

I am no expert, but I would advise not to do it. You have to take your income from your full time job out of the equation. Yes, a used X would qualify, but you want the self employed income alone to be higher (the more, the better) than the cost of the X, plus any other deductions that you might have. And you can get in trouble further down the road if your business usage changes substantially.

 

[Uncle Paul]

Everybodys tax situation is different, and each will need to determine if the Section 179 business deduction will work out for them.

In my case I had a one time bump in taxable income. The Model X ended up being the least expensive EV for me this year.

Made it much less expensive, after taxes, than buying a Model 3.

If you have a profitable business, you should at least run this option by your accountant to see if it might save you some money.

The X has been fantastic for me. I make deliveries in it, take customers out to lunch, and travel to suppliers. Without the tax benefits it would still have been the best choice for a company vehicle, but the after tax benefits make it a no brainer.

We are a recycling company, and the EV helps us hammer home the benefits of considering ECO products.

There are also benefits for going Solar, and will consider that if I have another good year...running on sunshine sounds great to me.

 

[Raechris]

Great question, Id like to know this too.

Sorry not a TMC power user yet.

Short answer is no. As long as car is registered in the fiscal/calendar year of the business you get the full effect.

 

[Dr. N-O]

Last add:

Remember, commuting is a personal, not a business expense. If your place of work is home, fine and dandy. But your commuting mileage is part of the non-deductible personal use of your vehicle. If you go immediately to a customer from home, I would deduct your commuting mileage from your total that day.

As others have said, this thread is incredibly helpful. Thank you @MelaniainLA and @cpa for all the thoughtful insights.

My husband and I have full-time jobs, but we also run a family cattle ranch and apiary. I'm not sure the MX would be considered an "ordinary" vehicle for our purposes, and maybe that's why our CPA sighs heavily when I bring it up. With regard to commuting, our home is the operations hub of the ranch (not an LLC), even though we don't live on the ranch. It's about 15 miles away. That 30-mile roundtrip would be the majority of the miles I would drive for business use. Is that considered commuting?

Also, I'm still not clear about whether the deduction applies only to the ranching/honey income or if our outside employment income comes into play. I've read most of the posts in these 4 pages, but the details of the tax code are so complicated.

 

[pkodali]

As others have said, this thread is incredibly helpful. Thank you @MelaniainLA and @cpa for all the thoughtful insights.

My husband and I have full-time jobs, but we also run a family cattle ranch and apiary. I'm not sure the MX would be considered an "ordinary" vehicle for our purposes, and maybe that's why our CPA sighs heavily when I bring it up. With regard to commuting, our home is the operations hub of the ranch (not an LLC), even though we don't live on the ranch. It's about 15 miles away. That 30-mile roundtrip would be the majority of the miles I would drive for business use. Is that considered commuting?

Also, I'm still not clear about whether the deduction applies only to the ranching/honey income or if our outside employment income comes into play. I've read most of the posts in these 4 pages, but the details of the tax code are so complicated.

What I have heard people do is take delivery in like december, and for the entire month use it for only business purposes and take advantage of the new bonus depreciation. Might want to talk to your CPA about that

 

[Shopmicrocode]

I've been pondering this deduction for about 6 months now. I currently work a fulltime job (60k) and have my side business selling computer parts on Amazon (50k profit) and I've been cramming boxes inside my civic for the past 2 years and now I'm looking at the model X and section 179. I'm currently at 40k profit this year and was -10k last year since I lost money on buying newegg pallets and rent for a warehouse. Should I consider a used MX or S? Or just stick with a M3 and use my pickup for transportation of products..any advice would help.

 

[pkodali]

I've been pondering this deduction for about 6 months now. I currently work a fulltime job (60k) and have my side business selling computer parts on Amazon (50k profit) and I've been cramming boxes inside my civic for the past 2 years and now I'm looking at the model X and section 179. I'm currently at 40k profit this year and was -10k last year since I lost money on buying newegg pallets and rent for a warehouse. Should I consider a used MX or S? Or just stick with a M3 and use my pickup for transportation of products..any advice would help.

If you can shows over 50% business use, you could determine the depreciation curve that you would like to use based on your profits each year. I would take to your cpa about it, but I see it being feasible

 

[Shopmicrocode]

I can definitely show over 50% usage. Another question, I read somewhere that you can lease the car to yourself and that would absolve any liability on the use for anything personal. Although, to me that doesnt make sense the lease would have to be profitable in the eyes of the IRS, right ?