Time running out for Model X 2017 *massive* business-use tax deduction

[nomad415]

@MelaniainLA @cpa - I have read all of your posts. Thanks for those. Highly appreciate, if you can look at my question below and advise. Thanks

I purchased a Tesla Model X LR 2020 on 12/29/2019. I have a W2 full time job. My wife runs a real estate business, in which I help out too. We are filing ‘Married filing jointly’. I am trying to take the full business deduction for the Tesla Model X. Please advise If I am doing it right.

In turbotax Home and Business (desktop version not the online version), I have entered it as an asset under ‘Business Income and Expenses’. In the list of assets that is offered, there is no option to select a vehicle or a SUV. I selected ‘Tools, Machinery. Equipment, Furniture’ (see screenshot 1 below). And then ‘General purpose tools, machinery and equipment’. In there I described it as a ‘Vehicle – SUV’. I put in the full price I paid including taxes of 116K and took the full deduction using section 168K, not the section 179 that allows only 25K for SUV. Is this the right way to do it using Turbo tax ? The issue I have is Turbo tax is flagging this as high risk for audit from IRS because this Tesla Model X is going on schedule C, where that business is not having any income. The income I have is from rental properties that are showing in Schedule E – supplemental income and loss, rents and royalties . Please advise how to correct this? Agree that a CPA should be consulted, but I don’t have time for that now since the filing deadline is tomorrow Oct 15th 2020.

 

[dmunjal]

I purchased a Tesla Model X LR 2020 on 12/29/2019. I have a W2 full time job. My wife runs a real estate business, in which I help out too. We are filing ‘Married filing jointly’. I am trying to take the full business deduction for the Tesla Model X. Please advise If I am doing it right.

In turbotax Home and Business (desktop version not the online version), I have entered it as an asset under ‘Business Income and Expenses’. In the list of assets that is offered, there is no option to select a vehicle or a SUV. I selected ‘Tools, Machinery. Equipment, Furniture’ (see screenshot 1 below). And then ‘General purpose tools, machinery and equipment’. In there I described it as a ‘Vehicle – SUV’. I put in the full price I paid including taxes of 116K and took the full deduction using section 168K, not the section 179 that allows only 25K for SUV. Is this the right way to do it using Turbo tax ? The issue I have is Turbo tax is flagging this as high risk for audit from IRS because this Tesla Model X is going on schedule C, where that business is not having any income. The income I have is from rental properties that are showing in Schedule E – supplemental income and loss, rents and royalties . Please advise how to correct this? Agree that a CPA should be consulted, but I don’t have time for that now since the filing deadline is tomorrow Oct 15th 2020.

TurboTax has a section for cars under business income (Schedule C).

 

[nomad415]

TurboTax has a section for cars under business income (Schedule C).

where is the section for cars, I dont see it under business income in Turbo tax. See the sceenshot attached.

 

[dmunjal]

where is the section for cars, I dont see it under business income in Turbo tax. See the sceenshot attached.
View attachment 598557

Should be the first section for business income (Schedule C).

Reporting Self-Employment Business Income and Deductions - TurboTax Tax Tips & Videos

 

[mongo]

where is the section for cars, I dont see it under business income in Turbo tax. See the sceenshot attached.
View attachment 598557

I'm not an accountant, but if those numbers are right, you have no rental income to offset. Are you planning to claim the 168k bonus deduction and roll it forward to future year(s) when the real estate is profitable?

Edit: it seems like you can offset the W2 income at least in the 179 case (see below).

 

[gaswalla]

Since the spouse is a real estate professional, do her losses offset her spouses W2 income when filing jointly?

 

[mongo]

Since the spouse is a real estate professional, do her losses offset her spouses W2 income when filing jointly?

I was trying to find that exact answer before but failed. I thought it didn't work that way, but it looks like I was wrong and (at least 179) can be apply against W2 income.

Per IRS: Publication 946 (2019), How To Depreciate Property | Internal Revenue Service
The total income is any trade or business.

This post indicates it does. Can I take Section 179 deduction against my spouses wages from another job?

Another CPA link that say it does:
Tax Reduction Letter - Apply Section 179 Expense against W-2 Income

Edit: IRS form instructions: https://www.irs.gov/pub/irs-pdf/i4562.pdf

Glad I'm not a CPA.
Edit 2: more support for offsetting spousal w2: How to file taxes when one spouse owns a business

 

[nomad415]

Thanks for the responses, I found the appropriate place to enter the car as a business use. Its in the screenshot attached. Now, logically the business income should show the amounts I have entered as rental income, but it does not.I guess thats because rental income is not considered 'earned income'

 

[dmunjal]

Thanks for the responses, I found the appropriate place to enter the car as a business use. Its in the screenshot attached. Now, logically the business income should show the amounts I have entered as rental income, but it does not.I guess thats because rental income is not considered 'earned income'

View attachment 598650

It is if you are a real estate professional I believe. Be sure to check that you actively managed it.

 

[nomad415]

I figured out the section 179 stuff. The income from the real estate business is not showing on the Schedule C because, the rents received were not on a 1099. The rental income shows on Schedule E. Yes, I have checked 'active managed' rental properties etc.

 

[Trophic88]

I have 1 rental property. It’s doesn’t really bring me in any extra money. Can I buy a model X for the business and claim the 100% deduction for 2020? For 2020 I would strictly use it to drive and view potential investment homes. And then starting 2021 I would use a mix of personal and business. I would want this to deduct from my w2 income. Seems possible but wanted to see if anyone had advice.

 

[ithinkmac]

I think the correct way of thinking around this is....

Instead of trying to make 179 work for you and somehow justify it. Just run your business based on what you need, and if you business requires the use of a car and use 179 to write-off assets, so be it. Not the other way around, thinking of how you can squeeze a write-off into your business somehow. I guess if you business requires transportation all the time and you need functions that can be provided by the Model X, then it fits. Take advantage. But if your business is talking on the phone with clients and customers and hardly leave the office, I don't know how this will fit into your business use.

Don't forget to log your miles. My favorite app right now is MileIQ from Microsoft.

-ThinkMac-

 

[mongo]

I have 1 rental property. It’s doesn’t really bring me in any extra money. Can I buy a model X for the business and claim the 100% deduction for 2020? For 2020 I would strictly use it to drive and view potential investment homes. And then starting 2021 I would use a mix of personal and business. I would want this to deduct from my w2 income. Seems possible but wanted to see if anyone had advice.

You must keep business usage above 50% after the first year. You also have to pay depreciation recapture on any future sale price.
The IRS can also check if your business is intended to be profitable (vs a break even hobby).

 

[Trophic88]

What happens if I drop business usage below 50% for year 2? I dont think this would happen until year3 because I have a personal car and I wfh and barely drive anywhere.

Can a rental property be considered a "hobby"? I can understand fake businesses people pretend to try and make just for the write offs, but a rental property consists of a substantial investment, monthly earnings, and a reasonable amount of time spend managing it. Technically a car isn't a major need for me to manage my property but can the IRS really claim I have no right to buy a car for my business?

 

[mongo]

What happens if I drop business usage below 50% for year 2? I dont think this would happen until year3 because I have a personal car and I wfh and barely drive anywhere.

Can a rental property be considered a "hobby"? I can understand fake businesses people pretend to try and make just for the write offs, but a rental property consists of a substantial investment, monthly earnings, and a reasonable amount of time spend managing it. Technically a car isn't a major need for me to manage my property but can the IRS really claim I have no right to buy a car for my business?

I believe the recovery period for a vehicle is 5 years. In that period, if business use drops below 50% there is depreciation recapture.
Not trying to say your rental is a hobby, it was just the general wording around an non to barely profitable business.

 

[MelaniainLA]

I have 1 rental property. It’s doesn’t really bring me in any extra money. Can I buy a model X for the business and claim the 100% deduction for 2020? For 2020 I would strictly use it to drive and view potential investment homes. And then starting 2021 I would use a mix of personal and business. I would want this to deduct from my w2 income. Seems possible but wanted to see if anyone had advice.

Can’t deduct against W2 income. Only against income for the particular business to thick it’s designated. And has to be your own business on schedule C or LLC or S Corp. Be careful. Know the rules. Ask here but also ask accountant. I have a phenomenal and cheap guy in CA state if anyone needs a referral. Gil Dor in Encino CA - mention Houman sent you

If you deduct against business income and are negative in income you simply carry forward that loss into future years against your business income as a Net Operating Loss. Doesn’t ever go against W2 income.

 

[rjdoc74]

Can’t deduct against W2 income. Only against income for the particular business to thick it’s designated. And has to be your own business on schedule C or LLC or S Corp. Be careful. Know the rules. Ask here but also ask accountant. I have a phenomenal and cheap guy in CA state if anyone needs a referral. Gil Dor in Encino CA - mention Houman sent you

If you deduct against business income and are negative in income you simply carry forward that loss into future years against your business income as a Net Operating Loss. Doesn’t ever go against W2 income.

I will call him and say Melania referred me

 

[OrthoSurg]

Sorry for being late to the party but I have a tax questions for Model Y purchase through corp in Canada, if anyone has been through this situation and could help.

Buying the Model Y to use through corporation for 80% and would declare a 20% personal use. As per my accountant the max claimable would be $850 monthly through business not to raise any flags. To keep payments below $850, I would need to put a $15,000 cash down. Now, would a cash down made through not corp funds be better to do or take the full $1030 monthly payments through financing and pay a $180 monthly portion through non Corp?
Thanks

 

[mongo]

Sorry for being late to the party but I have a tax questions for Model Y purchase through corp in Canada, if anyone has been through this situation and could help.

Buying the Model Y to use through corporation for 80% and would declare a 20% personal use. As per my accountant the max claimable would be $850 monthly through business not to raise any flags. To keep payments below $850, I would need to put a $15,000 cash down. Now, would a cash down made through not corp funds be better to do or take the full $1030 monthly payments through financing and pay a $180 monthly portion through non Corp?
Thanks

Oh, Canada...
Sorry, I missed that part originally.

 

[rjdoc74]

Sorry for being late to the party but I have a tax questions for Model Y purchase through corp in Canada, if anyone has been through this situation and could help.

Buying the Model Y to use through corporation for 80% and would declare a 20% personal use. As per my accountant the max claimable would be $850 monthly through business not to raise any flags. To keep payments below $850, I would need to put a $15,000 cash down. Now, would a cash down made through not corp funds be better to do or take the full $1030 monthly payments through financing and pay a $180 monthly portion through non Corp?
Thanks

This is a question for your accountant.