One of the big last minute tax strategies a lot of my clients like is the heavy vehicle write-off. If you buy a heavy vehicle, defined as a vehicle having a GVWR of over 6,000 lbs., that is used 100% for business, you can write off 100% of it.
That’s possible when you use the Section 179 in conjunction with the bonus depreciation. If your vehicle is used 80% for business, then you can write off 80%.
Please note that this only works with a heavy vehicle. If you don’t have a heavy vehicle but it is used for business purposes, you’ll still get a deduction, it just won’t be as much.
You don’t need to pay cash for it. You can finance it and still get that write-off.
What happens when you sell the vehicle?
Before you sell, calculate how much of a gain you’ll have.
Estimated sales price: $ xx,xxx
Less: Cost of sales ( x,xxx)
Less: Basis ( 000)
Gain is taxable. In the past, it was possible to trade in your vehicle for a new vehicle. It was a like kind exchange for vehicles. Effective 1/1/2018, like kind exchanges only worked for real property.
If you “trade in” a vehicle, the value given to the old vehicle is taxable.
Another strategy is to distribute out the vehicle at the fair market value. It’s distributed to an owner. Of course, this only works if you have a pass-through entity.
If the vehicle got hard use and/or a lot of miles, the vehicle’s fair market value will be lower. Look up the value using the Kelley Blue Book. The FMV could be taxable to the shareholder or could be treated as a payment against a shareholder loan.
This was the question that prompted this response today:
“If you use section 179 and take 100% deduction on a financed vehicle and then sell the vehicle after one year what happens?”
There were a couple of assumptions in the question that I corrected in the answer that came first.
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