Q:

Hi Kerry -

 

Section 179 deduction :

 

Purchase price of SUV (over 6000 lbs) $50,892. minus trade-in of 17,892.  total sales price is 33K which was purchased 12/2004. 

 

I use my vehicle 80% for real estate.  Does this mean I can deduct 80% of 33K up to 25K (or 80% of 25K)?

 

Also when calculating basis for future years deductions would that be $4000. (half of the difference between 33-25K)?

 

Thank you for your time!

A:

First, my standard admonition that anyone in the real estate profession, who is serious about minimizing their taxes, should be working with a tax pro, who would be able to answer questions such as these very easily.

In the example you gave, there are a few different things to consider. 

First is the amount that is eligible for the Section 179 deduction. For this, you can only count the additional cost paid for the vehicle, without counting the trade-in value.  In this case, it would be the $33,000 figure you mentioned (50,892 - 17,892).

Next is the maximum Section 179 which you may claim.  As you stated it was used 80% for business miles during 2004, we multiply $33,000 by 80% to arrive at $26,400.  Since you bought it after the law regarding SUVs changed in October, you may claim only $25,000 of the cost.

Next is the issue of the remaining cost basis for depreciation purposes.  You were on the right track, but you forgot to add in the adjusted cost basis of your trade-in vehicle.  Whenever there is a trade, the cost basis of the previous vehicle is added to the additional amount you pay for the new one to arrive at its cost basis.  You will need to refer to the depreciation schedule for your old vehicle to determine its adjusted cost basis at the time of the trade.  From that total, you will subtract the $25,000 Sec. 179 to arrive at the remaining cost for depreciation purposes.  From the other direction, that would give your new SUV a cost basis of $8,000 (33 - 25) plus the adjusted basis of the traded in one.

I hope this helps.  I also hope this illustrates why you need to use the services of a tax pro.

Good luck.

Kerry Kerstetter

Follow-up Q:

Thank you!!!

Do you know of good tax professional in the Boston (Billerica/Burlington) area?  I don't even know where to start......

A:

Unfortunately, we don't have anyone else to whom we could refer you. If you haven't already done so, you should check out my tips on how to select the right tax preparer for you at:
http://taxguru.org/incometax/prepare.htm

Good luck.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/25/2005 03:21:00 PM Send this post: