Vehicle Write Offs
I'm kind of new to this rental stuff but what i was wondering is i'm planning on buying a new pickup truck. I was wondering if it's better to buy or lease? :-?
I only have 7 rental units and was wondering if that is enough to write off vehicle payments or depreciation.
Thanks,
DAN
You would need to run some numbers but usually it doesn't pay to depreciate unless you use it more than 50% for business - easier to just use the standard mileage rate. Even above 50% it may not pay w/ depreciation limits. If you don't use the standard rate you have to keep track of all your actual expenses and your mileage to figure our your business use percentage.
Leasing may be a little better but there are still limits. You usually can't take the entire lease payment.
From Tax Service:
Deducting Expenses for Business Vehicles
Can I Write Off my SUV?
If you use a vehicle for business purposes, you need to decide which would be more advantageous - deducting the standard mileage rate or your actual expenses. That question can easily be answered by the type of vehicle you drive.
If your business vehicle weighs over 6,000 pounds, it is often more advantageous to use the actual expenses when computing your allowable deduction because the depreciation deduction limits are higher than for vehicles weighing less. You can also expense up to $25,000 of the cost in the first year the vehicle is used for business (up to $102,000 if the vehicle was purchased and put into service before October 22, 2004). The additional first-year write-off for a vehicle over 6,000 pounds is ONLY available if the business use of the vehicle exceeds 50%. There is NO write-off for personal use.
To check if a vehicle exceeds 6,000 pounds when fully loaded, check the manufacturer's metal information plate that is normally placed inside the door frame of the driver's side front door.
The standard mileage rate for business use is 37.5 cents per mile for 2004. If you bought a vehicle in 2004 that is eligible for the special 50% depreciation allowance, the actual expense method may be more advantageous. When making this choice, it's smart to estimate the amount of your vehicle deductions for the current year and future years, and make the choice based on your estimated expenses for the entire time you expect to keep the vehicle -- not just for the first year.
One caution before taking that full first-year write-off for that SUV over 6,000 pounds -- if the business usage of the vehicle ever drops to 50% or less in any year of its use, the "excess depreciation" or extra first-year write-off is subject to what the IRS calls "recapture." That means the excess depreciation taken must be reported as ordinary income subject to tax in the year the business use percentage fell to 50% or less. Be sure your business use percentage will stay above 50% before taking the extra first-year write-offs.
First - the additional first-year expense deduction (up to $25,000) isn't available for residential rental activities.
Also - don't know if the IRS will make a big deal of this but the additional bonus depreciation for vehicles is for vehicles used in a trade or business. Tax law usually considers rental property as property held for the production of income instead of a trade or business.