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Model X may qualify for 50% business write off.

flar

Member
Apr 20, 2013
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To be clear, people aren't included in the sense that the rating depends on the number of people riding in the vehicle at any particular time - they are included in the sense that they may not accumulate to cause the entire system to weigh more than the GVWR.

Think of the GVWR as a limit on how much the tires can handle before bursting. The actual spec includes any operational aspect of the vehicle so it could just as easily be the frame will bend, or the suspension will bottom out. It doesn't matter what the failure mode is, it just matters that you cannot exceed the GVWR and have the vehicle be safe.

At any given time you can add all sorts of stuff and the vehicle will weigh more or less, but it must at all times weigh less than the GVWR or you will be unsafe.

Do people matter? They don't "add to" the GVWR, instead their presence is limited by and subject to the GVWR limit.
 
Title: Tesla Model X will probably qualify for the Hummer Tax Loophole. What does that mean?
Posted September 8, 2015 by Charles Morris
Charged EVs | Tesla Model X will probably qualify for the Hummer Tax Loophole. What does that mean?

Barry Brents, a tax attorney and expert on EV incentives, burst our bubble.

So I guess he changes his mind if the incentive is $500,000 with a max cost of 2 million? So a company could invest in a fleet of Tesla Model Xs to use as taxis/shuttles and write off up to half a million? Too bad Shift shut down in Vegas or we could have seen another 19-20 MX sold in one shot....
 
Any news if the mx will be classified as a car or a truck? My accountant says that will be the difference in if 179 can be used. Suv's are often classified as trucks, but it is supposedly up to tesla and how they submitted the mx...i'd appreciate it if anyone has any insight into this.

The X is classified as a crossover utility vehicle (CUV)

Pulled below from the Web a while back when doing some research. Found it helpful. Keep in mind that laws change all the time so no guarantee this is still current. Enjoy :wink:
-------------------------------

Little-Known Tax Deductions on Crossover Vehicles
Crossover vehicles generally are built on a passenger-car platform (a unibody chassis). That makes them tax-deductible weird.

Why weird? For tax-deduction purposes, the crossover vehicle is either a passenger car or a light truck, depending on its vehicle attributes. It does not need a truck chassis to be a truck.

First-year tax deductions on a truck can vastly surpass first-year tax deductions on a car.

Car. Tax law imposes depreciation limits on cars. Lawmakers penalize cars costing as little as $15,800 by considering them luxuries and limiting depreciation write-offs, often severely.

Truck. Actually, the crossover vehicle does a two-step in the truck category. First, it has to qualify as a tax-law-defined truck. Second, once it’s a truck, it then by law becomes a sport utility vehicle (SUV) for tax-deduction purposes.

Once the two-step is complete, the tax write-off for the SUV crossover vehicle is either

1. A big tax deduction with Section 179 expensing of up to $25,000; 50-percent bonus depreciation on the Section 179 basis reduction; plus regular depreciation if the SUV has a Gross Vehicle Weight Rating (GVWR) greater than 6,000 pounds (think big truck, big deduction), or
2. A far lesser tax deduction because tax law imposes luxury truck limits like the auto luxury limits if the GVWR is equal to or less than 6,000 pounds.

Therefore, if you are thinking of buying a crossover vehicle such as a Volkswagen Touareg, Porsche Cayenne, Mercedes-Benz R-Class Wagon, Nissan Murano, or Ford Escape, you need both a GVWR of 6,001 pounds or greater and a tax classification as a truck to qualify for big first-year deductions.

What Is GVWR?

The GVWR is the loaded weight of the vehicle. Curb weight generally refers to the vehicle with no load. The GVWR includes: 1

· The weight of the crossover vehicle,
· Government-declared weights for people who can ride in the crossover vehicle, and
· A government-declared weight based on the cubic feet of the cargo area.

Manufacturers post the GVWR on a metal or paper plate on the driver-side door or doorframe. Thus, one easy way to identify the GVWR is simply to open the driver’s door and take a look.

Big Tax Write-Off

Big tax deduction. Say you buy a $47,000 crossover vehicle that tax law classifies as a truck. Say further that you use the crossover truck 100 percent for business. If the GVWR is 6,001 pounds or more, tax law allows you to deduct up to $38,200 this year.

Spreading the tax deduction. If the GVWR is 6,000 pounds or less, your first-year write-off is limited to $11,160 ($8,000 Limited Bonus Depreciation plus $3,160 “Luxury Auto” Depreciation). That’s part of the bad news. For the remaining $35,840, your luxury limited depreciation write-off takes an additional 17 years to fully depreciate the vehicle.

In this example, the combination of (1) truck status and (2) GVWR of 6,001 pounds or more produces a potential $38,200 ($25,000 Maximum Limited Section 179 + $11,000 Bonus Depreciation + $2,200 Regular Depreciation) first-year tax deduction, whereas failing either truck status or GVWR threshold limits the first-year Regular Depreciation write off to $3,160 as opposed to the truck or GVWR first-year Regular Depreciation to $3,460.

Knowing the GVWR rule is important to planning your crossover vehicle tax deductions. But the GVWR rule does not come into play unless your crossover vehicle is a truck.

When the Crossover Vehicle Is a Truck

Beware. The term “truck chassis” does not determine truck or car. The IRS got this wrong in 2003, and that created confusion that existed until 2008. 2

The Tax Reform Act of 1986 embeds the official truck or car classification in the gas-guzzler tax rules. In the legislative history of the luxury auto limits, you find the following: 3

The conference agreement includes all the provisions common to both bills. In addition, the conference agreement generally follows the House bill and the Senate amendment in utilizing "unloaded gross vehicle weight" for purposes of both the luxury vehicles and gas-guzzler tax provisions. However, the conference agreement follows the Senate amendment by utilizing "gross vehicle weight" for purposes of the luxury vehicles provision, with respect to trucks and vans.

Thus, for purposes of both the luxury rules under Section 280F and the gas-guzzler tax, tax law grants the Secretary of Transportation the authority to define cars and trucks. 4 The Department of Transportation says that your crossover vehicle is not a car but a light truck when it meets either A or B below:


A. Your crossover vehicle is a truck if you can create a flat, floor-level surface from the front seats to the rear by removing the seats using simple tools such as screwdrivers and wrenches. 5

B. Your crossover vehicle is a truck if it first has either (a) four-wheel drive or (b) a GVWR of more than 6,000 pounds, and second has four or more of the following five characteristics: 6
1. Approach angle of not less than 28 degrees
2. Break-over angle of not less than 14 degrees
3. Departure angle of not less than 20 degrees
4. Running clearance of not less than 20 centimeters
5. Front and rear axle clearances of not less than 18 centimeters
Paving the Way to Your Tax Deductions

You likely know this tax rule: “The burden of proof is on you.”

To qualify for the big tax deduction on your crossover vehicle, you need to prove that

1. The vehicle has a GVWR over 6,000 pounds and
2. That the vehicle is a truck for gas-guzzler purposes.

Finding the GVWR is easy. Usually the manufacturer’s specifications at its website will list the GVWR. If not, you can simply open the driver’s door and take a look.

Identifying the vehicle as a truck is more difficult. If the manufacturer says the crossover is a truck, it’s likely a truck, as the Department of Transportation has rules about labeling a vehicle a truck. You might find this truck label for your crossover at the manufacturer’s website and you might not, often not.

Plan B for identifying the crossover, as a truck is to see if you can make a flat, floor-level surface from the front seats to the rear with no more than a screwdriver and a wrench. If you can create the flat floor, you can qualify for the big truck write-off.

Plan C applies to crossovers that have a combined fuel economy rating of less than 22.5 miles per gallon. 7 Does your crossover fail this rating? If yes, does the gas-guzzler tax apply? You likely can find your new 2014 vehicle and check for the gas-guzzler tax in the following document:

If your crossover fails the 22.5 miles per gallon test and the gas-guzzler tax does not apply, your crossover is a truck.

If plans A, B, or C do not make your crossover a truck, you are stuck with meeting four of the five specifications that we discussed above. The good news is that manufacturers generally list at their websites the specifications that you need for comparison.

Your Reward

If your crossover vehicle has a high-enough GVWR and achieves truck status, you may use Section 179 expensing of up to $25,000 and 50-percent Bonus Depreciation to deduct the vehicle.

In the example above, the qualifying crossover truck triggered a possible $38,200 first-year deduction compared to the $11,160 first-year write-off for the crossover car.

NOTE FROM THE PUBLISHER

To see all the articles in the last two issues of Tax Reduction Letter, take a free trial.

Better yet, check out everything. Subscribe with zero risk with my personal 90-day, full money-back guarantee. Thus, if you are not happy for any reason, I promise that you will receive a complete refund.

Sincerely,

W. Murray Bradford, CPA
-------------------------------
 
Great new folks! The U.S. House just passed a budget that makes the IRS Section 179 deduction permanent. Oh and they also increased the limit for qualifying business property for 2015 and forward from $25,000 to $500,000!

Don't pop the champagne corks folks because it still has to pass the Senate be signed into law by the President.

I'd love for an tax accountant to review these facts.

http://docs.house.gov/billsthisweek/20151214/121515.250_xml.pdf
Hey, was this passed and signed into law or did it get changed/deleted?
 
... and to add to the confusion of our tax laws be sure to consider how depreciation is "recaptured" when you sell your business vehicle. Accelerated depreciation can be "recaptured" when you sell and asset at HIGHER "ordinary" income tax rates (OUCH) vs. Straight Line depreciation which is "recaptured" at LOWER capital gains rates.

So be sure to consider the TOTAL cost of assets over their entire life, not just the year you buy it, before making your tax deductible asset purchase decisions. This makes a HUGE difference for property owners who take Accelerated depreciation on their investment properties... and end up with a HUGE depreciation "recapture" at typically MUCH higher ordinary income tax rates when they sell.

I just went through a complete asset purchase & sold cycle on a business passenger vehicle in service for 10 years that didn't qualify for the Section 179 depreciation and thus was subject to the IRS mandated 17 year depreciation schedule. Although the IRS "book" depreciation was lower than the resale market "actual" depreciation during the 10 years of ownership, we got a significant tax loss when we sold this asset since the IRS "book" depreciation was significantly LESS than the "actual" sales price... and we didn't have accelerated depreciation recaptured at higher ordinary income tax rates.

YMMV

Professional driver, closed course
 
... and to add to the confusion of our tax laws be sure to consider how depreciation is "recaptured" when you sell your business vehicle.

You are mixing up Section 1245 property (e.g., tangible personal property (like a Model X), which is always subject to recapture of depreciation at ordinary tax rates if the asset is sold for more than the adjusted cost basis) and Section 1250 property (e.g., real estate, where accelerated depreciation is subject to recapture at ordinary rates and straight line depreciation is subject to recapture at less than ordinary rates).

It's a complicated area of the tax code, and each X owner using Model X for business purposes should consult their individual tax advisor instead of getting tax advice from this or any other forum.
 

bhzmark

Active Member
Jul 21, 2013
3,985
7,121
It's a complicated area of the tax code, and each X owner using Model X for business purposes should consult their individual tax advisor instead of getting tax advice from this or any other forum.

Because it is a non obvious issue, people who have looked into this are welcome to share their information with others on this forum. That's the point of this forum. Share information with others in a friendly helpful way.
 
Because it is a non obvious issue, people who have looked into this are welcome to share their information with others on this forum. That's the point of this forum. Share information with others in a friendly helpful way.

No offense, but the fact that it's "non-obvious" is exactly the reason why you shouldn't be getting advice from random affluent strangers on a forum. Feel free to share the info, but it would behoove the person looking for good advice to ask a qualified tax professional BECAUSE it's not a simple cut and dry question. It's also not a new question. I looked into this in 2004 when I was contemplating my first SUV purchase.

In the medical field, I spend the majority of my day debunking bad medical advice from the internet that does not apply to the person who read it. I don't mind debunking at all! But non-professionals and their advice should really be taken with a grain of salt (or three).

And I may be reaching a bit here, but if you're in the market for a $100K+ car, you are probably affluent enough to hire a GOOD tax preparation specialist. If they claim they are unfamiliar with this rule, then find another tax preparer. This is an extremely common question that almost all tax preparers have fielded before.

the best advice is: "hey guys! The X is over 6000 lbs! You might qualify for a business tax deduction! Make sure to ask your tax preparer about this!" Keep sharing awareness, but be very very careful about tax advice (or medical advice!) on a car forum.
 

bhzmark

Active Member
Jul 21, 2013
3,985
7,121
I don't understand the personality type that writes things like that--wringing their hands about people sharing information about medicine or law or taxes or really anything. I suppose it is someone who has extreme anxiety issues. The idea that uncredentialed people could actually help each other and share info causes great mental distress. But dont take advice from me. I suggest you see your psychologist. Or consult Dr. Pubmed.

Meanwhile here is some information that you should ignore and instead ask your accountant to tell you the same thing (but they might get it wrong -- oops):

An automobile that is used for business is generally (with an important exception described below) treated as five-year property under the depreciation rules, which normally would entitle you to a deduction of 20% of the depreciable basis of the car (its cost for tax purposes) in the year you place it in service. However, under the so-called “luxury auto” rules, depreciation deductions are artificially capped. For example, if you bought a business auto and placed it in service in 2015, your depreciation deduction for it for 2015 couldn't exceed $3,160, regardless of the cost of the car. Thus, for an automobile that cost $60,000, instead of a 20% deduction (which would equal $12,000), a taxpayer is limited by the luxury auto rules to a depreciation deduction of $3,160.

This luxury auto cap would also apply to a taxpayer's election under Code Sec. 179 to expense (in lieu of a depreciation deduction) the acquisition costs of business assets placed into service during the tax year. The Code Sec. 179 expense deduction is treated as a depreciation deduction for purposes of the above dollar limits.

Because of the restrictions for cars, business owners are often better off tax-wise to buy a big SUV . That's because the regular annual depreciation and expensing caps for automobiles don't apply to trucks, SUVs that are rated at more than 6,000 pounds gross (loaded) vehicle weight. Instead, for an SUV with a weight > 6k and < 14k pounds, up to $25,000 of the cost can be expensed. Annual depreciation deductions can be claimed for the balance of the cost.

Note too that if business use of the vehicle doesn't exceed 50% of total use, the SUV isn't eligible for expensing and has to be depreciated on a straight-line method over a six-tax-year period. (Many people miss or ignore (or lie about) this limit and are at risk on this issue. It frankly kills the benefit for more people who don't truly use the car > 50% for business.)

For new SUVs 50% of the cost of the SUV can be deducted in the year that the car is placed in service (50% bonus depreciation). The SUV is then eligible for depreciation, at an accelerated rate,of the remaining 50% of the cost in the six-tax-year period beginning in the placed-in-service-year.


PATH didn't change this and didn't increase the $25k limit to $500k -- $500k applies to most other business property, and was made permanent by PATH, but $25k is still the limit for this Hummer tax loophole.

But don't read this. Instead just seek professional advice -- sorry for the bother. Mods can you delete this post? It might be dangerous in the hands of the uncredentialed -- who should only receive the gospel from their paid and credentialed advisers.
 
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Vitold

Active Member
Aug 10, 2015
1,688
1,950
NM
Because it is a non obvious issue, people who have looked into this are welcome to share their information with others on this forum. That's the point of this forum. Share information with others in a friendly helpful way.

No offense, but the fact that it's "non-obvious" is exactly the reason why you shouldn't be getting advice from random affluent strangers on a forum. Feel free to share the info, but it would behoove the person looking for good advice to ask a qualified tax professional BECAUSE it's not a simple cut and dry question. It's also not a new question. I looked into this in 2004 when I was contemplating my first SUV purchase.

In the medical field, I spend the majority of my day debunking bad medical advice from the internet that does not apply to the person who read it. I don't mind debunking at all! But non-professionals and their advice should really be taken with a grain of salt (or three).

And I may be reaching a bit here, but if you're in the market for a $100K+ car, you are probably affluent enough to hire a GOOD tax preparation specialist. If they claim they are unfamiliar with this rule, then find another tax preparer. This is an extremely common question that almost all tax preparers have fielded before.

the best advice is: "hey guys! The X is over 6000 lbs! You might qualify for a business tax deduction! Make sure to ask your tax preparer about this!" Keep sharing awareness, but be very very careful about tax advice (or medical advice!) on a car forum.

@bk, no offense, but your post sounds like sour grapes. Internet can be a source of good and bad information, leave it to a reader to separate shaft from the wheat. It would be great if EV owners could take advantage of this tax benefit (some call it a loophole) that has, till now, added more gas guzzlers on the roads. No one here is advocating doing so w/o tax advice but reading on how it's done could make one consider this option...or change their tax adviser.
 
No sour grapes here. I said multiple times in my post "feel free to share the information". Keep in mind that, with what I do, I see quite a bit of HARM from bad internet advice, and very little good. But whatevs, yo. Do what makes you happy and Caveat Emptor.

P.S. Really? My caution to "be careful with internet advice" deserved name-calling ("extreme anxiety", etc.)? I hope you have a better day, and I am sorry that my post caused you so much distress that you felt the need to lash out.
 
Because it is a non obvious issue, people who have looked into this are welcome to share their information with others on this forum. That's the point of this forum. Share information with others in a friendly helpful way.

My comment (which you have partially quoted) was directed solely at the quote which immediately preceded it in my comment.

I was politely saying that the information provided on certain depreciation recapture issues was flat out wrong. Incorrect. Do not rely on it.

That said, everyone here may do what they choose with respect to their tax issues.

Just keep in mind that there is bad information already posted in this thread. Feel free to pick out the good information from the bad.
 
You are mixing up Section 1245 property (e.g., tangible personal property (like a Model X), which is always subject to recapture of depreciation at ordinary tax rates if the asset is sold for more than the adjusted cost basis) and Section 1250 property (e.g., real estate, where accelerated depreciation is subject to recapture at ordinary rates and straight line depreciation is subject to recapture at less than ordinary rates).

It's a complicated area of the tax code, and each X owner using Model X for business purposes should consult their individual tax advisor instead of getting tax advice from this or any other forum.

Thanks for the Section 1245 property (e.g., tangible personal property like a Model X) vs. Section 1250 property (e.g., real estate) clarification! Much appreciated!

Definitely consult a competent tax advisor about the tax benefits / consequences of your Tesla purchase not only the initial year of ownership but over the asset's life if you intend to write it off as business use. Like DDG said it's a complicated area of the tax code.
 
Sorry all, I didn't mean to get everyone worked up. I am planning to get advice from a tax specialist but wanted to have all the data I can to help him review the situation. Especially the GVWR for the X's that are out. I'll look at Bonnie's images. As for the rest of you, I appreciate all the input I get and welcome it. Yes, at the end of the day, I will take the advice of my tax acct.

Any information I get is valuable and yes, I can afford an accountant. Mainly I was looking for what this group has seen, heard or discussed about the issue as we are somewhat blazing new ground here.

Thank you to those that took the time to reply to my request. I appreciate all the time that went into the discussion.
 
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In the medical field, I spend the majority of my day debunking bad medical advice from the internet that does not apply to the person who read it. I don't mind debunking at all! But non-professionals and their advice should really be taken with a grain of salt (or three).

And I chimed in only because I am a tax CPA with 30 years+ experience and a particular issue needed to be debunked.

The most interesting tax project I ever worked on was when a vehicle manufacturer mislabeled the GVWR stickers on a high-end luxury-line SUV one year. That caused the vehicles to be recalled because a new sticker had to be placed on each vehicle --- and caused consternation among the vehicle owners who had taken a 179 deduction that they were no longer entitled to since the correct GVWR was below the Section 179-required rating.

That car company stepped up to the plate and reimbursed those owners for the lost tax savings. But boy, there sure were a lot of 100% business use of vehicles that made absolutely no sense to me given that commuting miles don't count as business use. It's a very easy area for the IRS to audit.
 

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