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TLDR Summary: What is the best way to buy an expensive vehicle that can be claimed as business expense?

We have 2 beaters with 100k miles. They have scratches, rust, dings and dents.  I love them dearly.  But I had to take a client to lunch recently and for the first time, I was embarrassed about my car.

I am contemplating buying a Tesla.
Model S (which is under 6000 lb) is approx 110k OTR.  
Model X (which is over 6000 lb) is approx 125k. OTR
I plan to keep it till it dies.

I am trying to find the most tax efficient way to buy the vehicle. I am not interested in claiming mileage because I drive very little. The main attraction is the depreciation.
The vehicle will be for 100% business use.  

Here is what I have found.
1) You have to buy the larger car (greater than 6000 lb) to trigger section 179 depreciation.  I don't like it but it may mean I go for Model X.
2) But if you lease, you can deduct the entire lease payment.  The tax savings are indeed greater than lease finance charges. But I hate wasting money on lease charges especially when you have the cash to pay for it.  I also hate the restrictions that come with leasing.

Google search turned up recommendations for the following
1) Buy the car in your name with cash.
2) Draw up a lease agreement with business.
3) Business claims the full tax deduction for lease payment.
4) You report lease payments as income and depreciation+maintenance as expense on personal return.
I don't see the point here.  It will all be a wash.  And you will pay FICA on the net income since it will be 1099-MISC. What am I missing?
Also will IRS frown at this because this is not arms-length transaction.

The second option is to buy in company's name and sell it to a family member after a few years for FMV.
1) Will the insurance be lot more expensive (even though spouse and I are the only employees).
2) Will the insurance cover if a non-employee (such as family member or friend) borrows the car   
 
How have you structured your past purchases of luxury vehicles?

PS: Right now, I am just claiming mileage because that is the best option if you are buying a cheap(er) car OR if you drive a lot.  I can always buy an Accord for $30k and continue claiming mileage.  But for once, I am in a mood to splurge. 
ETA: I have bought 4 cars in my life - all used and paid in cash.  So I am a little unfamiliar with new car buying/leasing.  Please pardon my ignorance.

Member Summary
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The sedan/SUV limit is still $25k.
The $500k is for machinery/equipment/non-passenger vehicles (such as dump trucks etc)

ssgcinty (Oct. 13, 2016 @ 6:35p) |

I'm confused. You're talking like you've already posted in this thread.

meade18 (Oct. 17, 2016 @ 4:05p) |

I'd buy a collector car and only drive it on special occasions. There are plenty of nice older cars that aren't deprecia... (more)

SuperMxyz (Oct. 24, 2016 @ 4:34p) |

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I'm sorry that I can't help you at all with what you are actually looking for. But in the spirit of a new car thread, I'll make another suggestion. If you don't drive much, and only just recently had to take a client to lunch, have you considered just keeping things the way they are and renting a car any time you are in that situation?

BingBlangBlaow said:   I'm sorry that I can't help you at all with what you are actually looking for. But in the spirit of a new car thread, I'll make another suggestion. If you don't drive much, and only just recently had to take a client to lunch, have you considered just keeping things the way they are and renting a car any time you are in that situation?
  
I don't think I've ever been in a rental where it hasn't been extremely obvious just from looking around that it's a rental car. The (often) out of state plate, no smoking stickers, barcode stickers on the windshield, lock box for a toll transponder all stick out like a sore thumb. It'll look better than a beater but might lead to a different impression with clients.

If the goal here is to impress clients with a fancy car, the lease will get you a new car every couple years to maintain your squeaky clean image. 

Just lease it.

What restrictions are you concerned about?
Mileage is really the only thing to be concerned about and you've already stated you drive very little.

I know that the IRS scrutinizes any return that attempts to write off the use of a non-specialty, passenger vehicle as a business expense using any method OTHER than the mileage method. It's one of the must abused (in their opinion..) sections of the US tax code. So even if you have all your ducks in a row, and they must quack in perfect unison, you should factor in the increased audit risk if the hassle and time matters to you.

All that being said, lease is probably the way to go for you. The used car market is depleted right now so dealers often offer cash to leaseholders to cancel their lease early, especially of its a low mileage lease, for their lucrative Certified Pre-owned programs..

How nice does the Tesla need to be? If you want to save a few $10k's, go for an S 60.

I dont know how many time you have to take clients out for lunch/dinner. if it is not very frequent then how about just renting a nice car for a day when you take the client out?

Didnt see it was already suggested by BingBlangBlaow 

DShaw94 said:   I know that the IRS scrutinizes any return that attempts to write off the use of a non-specialty, passenger vehicle as a business expense using any method OTHER than the mileage method. It's one of the must abused (in their opinion..) sections of the US tax code. 
  But isn't the mileage method also easily abused since the only documentation is your mileage log and the start and end of your odometer?  It seems awfully easy to lump nonbusiness mileage into it and claim its 100% biz when it's not?

plastrd said:   
BingBlangBlaow said:   I'm sorry that I can't help you at all with what you are actually looking for. But in the spirit of a new car thread, I'll make another suggestion. If you don't drive much, and only just recently had to take a client to lunch, have you considered just keeping things the way they are and renting a car any time you are in that situation?
  
I don't think I've ever been in a rental where it hasn't been extremely obvious just from looking around that it's a rental car. The (often) out of state plate, no smoking stickers, barcode stickers on the windshield, lock box for a toll transponder all stick out like a sore thumb. It'll look better than a beater but might lead to a different impression with clients.

If the goal here is to impress clients with a fancy car, the lease will get you a new car every couple years to maintain your squeaky clean image. 

  
Is something like Silvercar in your area OP?
I dont think that Silvercar has out of state plates or other crap all over it to make it look like a rental.  It also is the same car every rental so your repeat clients would never know.  You could rent a Silvercar 7 or 8 days a month before you paid an equivalent amount for a tesla, and then still deduct rental as a business expense.

Also you could just rent a car driver for the day for the few times you have this need. That might impress even more, allow you to do business more easily while driving and should be an easy expense to pass on to business.

BenH said:   Also you could just rent a car driver for the day for the few times you have this need. That might impress even more, allow you to do business more easily while driving and should be an easy expense to pass on to business.
  uber black?

My area has this place https://nextcarrental.com/sedan-rental.htm and the last time I rented from them, the vehicle wasn't obviously a rental and they have some really reasonable rates for nicer cars. ($80 for an Acura MDX or a Mercedes E-Class if you are going for a reasonable-but-classy impression, $60 for a Dodge Challenger if you want to be the cool guy) They have in-state plates. Perhaps there is something similar in your area.

"not what you think"

lol, all new car threads here are inevitably "don't buy a new car" threads. Accept it before it destroys you, OP and off-topic admin police!

Make sure you factor in Tax credits in your state for an EV when making your decision. Between business deductions and tax credits, you can substantially lower the cost of an EV when either leasing or buying one.

plastrd said:   
 
I don't think I've ever been in a rental where it hasn't been extremely obvious just from looking around that it's a rental car. The (often) out of state plate, no smoking stickers, barcode stickers on the windshield, lock box for a toll transponder all stick out like a sore thumb. It'll look better than a beater but might lead to a different impression with clients.

If the goal here is to impress clients with a fancy car, the lease will get you a new car every couple years to maintain your squeaky clean image. 

  What kind of clients does OP has that haven't already  been scared off by 100k mile car but would not be happy with a clean rental?

For me, if I want a nice car for a short duration.....RENT.

Ok - let me be clear. I don't NEED a fancy car to impress the clients. And I certainly don't need a chauffeured car. That will be too corny. I just need a better car so they are not put off by my beater. Any family car (including a minivan) is fine. Plus it is very rare that I have to take them out. When we go out, the per person tab will be about $25-40. So we are not going to some swanky restaurants either.

SlimTim's prediction is 100% accurate. I am in the mood to splurge and you guys are spoiling my mood.
(/mock anger)

I can buy clean used Accord for 20k and simply expense the miles. And a year later, I will thank you for that.

DShaw, you raise a good point. A dump truck or a cargo van is different. A 179 deduction for Tesla may be "pick me pick me" for an audit.
Matt, the Tesla numbers I quoted include tax credits.
JD, Taylor, I only knew Turo. I did not know about these options. Will take a look.

The question here is not just about Tesla but any expensive car north of 50k.
What is the best way to buy it?

Easiest method, and I will post it on my blog one of these days, is to buy a Model X.
Use section 179 to write 25K off + 50% depreciation. Also able to claim $7500 federal tax credit + whatever State, City, Utilities etc bennies you have.
For example: $100K - $25K (section 179) - $32.5K ( (100-25)/2) bonus depreciation. First year write off is 57.5K. If you don't have enough tax liability, this tax 'loss' can be carried forward to subsequent years.

Then: Run it for a year or so. Sell it to a non-relative person. See IRS def for relatives. That person will take section 179 again. You don't have to worry about depreciation recapture if you sell it at a loss, or whatever. read up on restrictions for depreciation recapture.

Rent a limo.

Crown Vic. Let the client play with the spotlight. If he gets surly, put him in the back where the doors only open from the outside.

ssgcinty said:   Plus it is very rare that I have to take them out.
 

  
Buying a car is a keeper, why buy if you rarely take them out?

Run the numbers, but I think RENT you can avoid some numbers that you would incurred if you were to buy.  Like maintenance/insurance/etc.  And a Rental, you can enjoy the NEW CAR.

Honestly I am starting to dislike owning a NEW CAR just because there are so many idiots on the road/parking/everywhere.  I can't avoid them since they are everywhere.  It hurts when some idiot park next to my car and carelessly swing out their door and BAMMMM!!! into my NEW CAR.

Now if you want to upgrade your car a bit, than your wording is wrong.  More and more sound like you want to upgrade your car a bit.

cr3s
Now we are talking. I did some further research based on your numbers.
Here is what I found for a $100k car
25k  Section 179 Depreciation    
37.5k Bonus 50% depreciation for first year   (100-25)*50%
7.5k Regular 5 year depreciation   (100-25-37.5)*20%
----- ------------------------------------------------    
70k Total    

I am coming up with SEVENTY K. Does that sound right?
A 100k vehicle can generate $70k deduction in the first year. No wonder our tax code is screwed up.

Lease.

ssgcinty said:   I am coming up with SEVENTY K. Does that sound right?
A 100k vehicle can generate $70k deduction in the first year. No wonder our tax code is screwed up.

  
I'm not a Tax expert so I can't crosscheck your numbers. I'd caution you to consider the increased audit risk that DShaw94 mentioned.

<assuming the numbers are correct>
I'd also argue that the $70k writeoff is doing what it should do--encouraging you to go from buying a $20k car to buying a $100K car. That's like buying 5 cars instead of 1. The government is spending $14k (assuming 20% tax rate) to get you to open up for another $80k (plus they're transferring $6-9k into your local municipality through the sales tax on the new purchase as well). 

ssgcinty said:   cr3s
Now we are talking. I did some further research based on your numbers.
Here is what I found for a $100k car
25k  Section 179 Depreciation    
37.5k Bonus 50% depreciation for first year   (100-25)*50%
7.5k Regular 5 year depreciation   (100-25-37.5)*20%
----- ------------------------------------------------    
70k Total    

I am coming up with SEVENTY K. Does that sound right?
A 100k vehicle can generate $70k deduction in the first year. No wonder our tax code is screwed up.


It may not be that screwed up.

I was of the understanding that, in practice, the IRS rarely allows anything BUT the mileage method for passengers vehicles unless it's a specialty vehicle that, due to its function, have anything but 100% business use. Like a utility truck or the car has 'PaydayLoans.com' painted on it. Remember: Ultimately you have to prove the $100,000 extra you paid for a Tesla was a 'reasonable businessential expense' given your profession/job. If not, the IRS will just say 'no' and you'll re-do your taxes using the mileage method...with the Tesla.

Honestly, you should talk to a tax accountant at this point.

DShaw94 said:   
ssgcinty said:   cr3s
Now we are talking. I did some further research based on your numbers.
Here is what I found for a $100k car

25k  Section 179 Depreciation    
37.5k Bonus 50% depreciation for first year   (100-25)*50%
7.5k Regular 5 year depreciation   (100-25-37.5)*20%
----- ------------------------------------------------    
70k Total    

I am coming up with SEVENTY K. Does that sound right?
A 100k vehicle can generate $70k deduction in the first year. No wonder our tax code is screwed up.


It may not be that screwed up.

I was of the understanding that, in practice, the IRS rarely allows anything BUT the mileage method for passengers vehicles unless it's a specialty vehicle that, due to its function, have anything but 100% business use. Like a utility truck or the car has 'PaydayLoans.com' painted on it. Remember: Ultimately you have to prove the $100,000 extra you paid for a Tesla was a 'reasonable businessential expense' given your profession/job. If not, the IRS will just say 'no' and you'll re-do your taxes using the mileage method...with the Tesla.

Honestly, you should talk to a tax accountant at this point.

  So how does the IRS know the mileage you claim was 100% business?

rufflesinc said:   
DShaw94 said:   
ssgcinty said:   cr3s
Now we are talking. I did some further research based on your numbers.
Here is what I found for a $100k car


25k  Section 179 Depreciation    
37.5k Bonus 50% depreciation for first year   (100-25)*50%
7.5k Regular 5 year depreciation   (100-25-37.5)*20%
----- ------------------------------------------------    
70k Total    

I am coming up with SEVENTY K. Does that sound right?
A 100k vehicle can generate $70k deduction in the first year. No wonder our tax code is screwed up.


It may not be that screwed up.

I was of the understanding that, in practice, the IRS rarely allows anything BUT the mileage method for passengers vehicles unless it's a specialty vehicle that, due to its function, have anything but 100% business use. Like a utility truck or the car has 'PaydayLoans.com' painted on it. Remember: Ultimately you have to prove the $100,000 extra you paid for a Tesla was a 'reasonable businessential expense' given your profession/job. If not, the IRS will just say 'no' and you'll re-do your taxes using the mileage method...with the Tesla.

Honestly, you should talk to a tax accountant at this point.

  So how does the IRS know the mileage you claim was 100% business?

  Honor system, I guess. I was audited and they didn't question my HUGE mileage deduction. Some other things came up but that wasn't one of them.

alamo11 said:   rufflesinc said:   
DShaw94 said:   
ssgcinty said:   cr3s
Now we are talking. I did some further research based on your numbers.
Here is what I found for a $100k car


25k  Section 179 Depreciation    
37.5k Bonus 50% depreciation for first year   (100-25)*50%
7.5k Regular 5 year depreciation   (100-25-37.5)*20%
----- ------------------------------------------------    
70k Total    

I am coming up with SEVENTY K. Does that sound right?
A 100k vehicle can generate $70k deduction in the first year. No wonder our tax code is screwed up.


It may not be that screwed up.

I was of the understanding that, in practice, the IRS rarely allows anything BUT the mileage method for passengers vehicles unless it's a specialty vehicle that, due to its function, have anything but 100% business use. Like a utility truck or the car has 'PaydayLoans.com' painted on it. Remember: Ultimately you have to prove the $100,000 extra you paid for a Tesla was a 'reasonable businessential expense' given your profession/job. If not, the IRS will just say 'no' and you'll re-do your taxes using the mileage method...with the Tesla.

Honestly, you should talk to a tax accountant at this point.

  So how does the IRS know the mileage you claim was 100% business?

  Honor system, I guess. I was audited and they didn't question my HUGE mileage deduction. Some other things came up but that wasn't one of them.


The IRS would have the right to expect a detailed list of every trip you took(location A to B, date, business purpose, clients met, etc.) and then pick one or two, recalculate the mileage and maybe confirm with the client or restraunt. That being said, the IRS would never do this if you use the standard mileage and your overall miles is in the reasonable range for your listed profession. The $$ risk of overstatement is just too small to warrant the effort.

Just ask yourself this: OP probably had a $1,000 deduction for business mileage this year and if he buys a Tesla he's figuring on a $70,000 deduction next year for business mileage. Do YOU think the IRS will have a problem with this?

cr3s said:   Easiest method, and I will post it on my blog one of these days, is to buy a Model X.
Use section 179 to write 25K off + 50% depreciation. Also able to claim $7500 federal tax credit + whatever State, City, Utilities etc bennies you have.
For example: $100K - $25K (section 179) - $32.5K ( (100-25)/2) bonus depreciation. First year write off is 57.5K. If you don't have enough tax liability, this tax 'loss' can be carried forward to subsequent years.
Others here/above say that doing this instead of the Mileage Method on a non-specialty(utility-truck, etc) passenger vehicle is quite likely not to survive an audit.  Have you made it through an audit ?

www.relayrides.com or www.turo.com to rent non-rental cars from others (including luxury cars)- similar model to airbnb.

ssgcinty said:   cr3s
Now we are talking. I did some further research based on your numbers.
Here is what I found for a $100k car

25k  Section 179 Depreciation    
37.5k Bonus 50% depreciation for first year   (100-25)*50%
7.5k Regular 5 year depreciation   (100-25-37.5)*20%
----- ------------------------------------------------    
70k Total    

I am coming up with SEVENTY K. Does that sound right?
A 100k vehicle can generate $70k deduction in the first year. No wonder our tax code is screwed up.

  Yeah. that's about right.  Depending on your income bracket.  For example, if you're in the 28% income bracket, , you'd get 20.5K in tax refunds for yr one. 
You can only claim section 179 or mileage.  You cannot do both from my reading.

I also think you should stop reading all these misleading posts from some of these low hands.  You have enough to go on.  If you were to purchase a vehicle, take possession in december, ensure that it's used for 100% business.  Even ubering will do. Then you can claim 100% business deduction

If you're in California, you can buy me a beer.

Good luck.
 

xoneinax said:   
cr3s said:   Easiest method, and I will post it on my blog one of these days, is to buy a Model X.
Use section 179 to write 25K off + 50% depreciation. Also able to claim $7500 federal tax credit + whatever State, City, Utilities etc bennies you have.
For example: $100K - $25K (section 179) - $32.5K ( (100-25)/2) bonus depreciation. First year write off is 57.5K. If you don't have enough tax liability, this tax 'loss' can be carried forward to subsequent years.

Others here/above say that doing this instead of the Mileage Method on a non-specialty(utility-truck, etc) passenger vehicle is quite likely not to survive an audit.  Have you made it through an audit ?

  Based on what data are these people claiming this?   If anything, claiming section 179 is more cut and dry than claiming mileage because you can document business use easily.

I don't understand the motivation of people on here espousing conceived opinions as facts.
 

Lease the car in your name, charge back the full lease back to your company (I am single employee of the company). Deduct as well all maintenance , repairs, this is why I go for a certified pre-owned with low miles, someone else took the hit on the initial depreciation.
Here's the beauty of our tax system, your company can write off the miles as well. Lease the car with independent brokers, no mile restrictions, no security deposit (with good credit) just the first months payment. If you pay the whole lease up front (i did this for 4 years lease) you dont have to pay the taxes (saved me $3750 on '16 BMW X5), i can turn it in for a new car in 3 years with no penalties.
For the naysayers, been doing this for years, and with the blessing of the IRS who inquired (never audited) about the transactions.

cr3s said:   Easiest method, and I will post it on my blog one of these days, is to buy a Model X.
Use section 179 to write 25K off + 50% depreciation. Also able to claim $7500 federal tax credit + whatever State, City, Utilities etc bennies you have.
For example: $100K - $25K (section 179) - $32.5K ( (100-25)/2) bonus depreciation. First year write off is 57.5K. If you don't have enough tax liability, this tax 'loss' can be carried forward to subsequent years.

Then: Run it for a year or so. Sell it to a non-relative person. See IRS def for relatives. That person will take section 179 again. You don't have to worry about depreciation recapture if you sell it at a loss, or whatever. read up on restrictions for depreciation recapture.

  I could be way off on this, but I seem to remember something about Tessa trying to control the second-hand market for their cars by requiring you to sell it back to them.

No - there is no such requirement.

DShaw94 said:   
alamo11 said:   
rufflesinc said:   
DShaw94 said:   
ssgcinty said:   cr3s
Now we are talking. I did some further research based on your numbers.
Here is what I found for a $100k car




25k  Section 179 Depreciation    
37.5k Bonus 50% depreciation for first year   (100-25)*50%
7.5k Regular 5 year depreciation   (100-25-37.5)*20%
----- ------------------------------------------------    
70k Total    

I am coming up with SEVENTY K. Does that sound right?
A 100k vehicle can generate $70k deduction in the first year. No wonder our tax code is screwed up.


It may not be that screwed up.

I was of the understanding that, in practice, the IRS rarely allows anything BUT the mileage method for passengers vehicles unless it's a specialty vehicle that, due to its function, have anything but 100% business use. Like a utility truck or the car has 'PaydayLoans.com' painted on it. Remember: Ultimately you have to prove the $100,000 extra you paid for a Tesla was a 'reasonable businessential expense' given your profession/job. If not, the IRS will just say 'no' and you'll re-do your taxes using the mileage method...with the Tesla.

Honestly, you should talk to a tax accountant at this point.

  So how does the IRS know the mileage you claim was 100% business?

  Honor system, I guess. I was audited and they didn't question my HUGE mileage deduction. Some other things came up but that wasn't one of them.


The IRS would have the right to expect a detailed list of every trip you took(location A to B, date, business purpose, clients met, etc.) and then pick one or two, recalculate the mileage and maybe confirm with the client or restraunt. That being said, the IRS would never do this if you use the standard mileage and your overall miles is in the reasonable range for your listed profession. The $$ risk of overstatement is just too small to warrant the effort.

 What's "the standard mileage"? I'm confused ... I thought there was two ways to deduct vehicle expenses: actual expenses (lease/depreciation, gas, maintenance insurance etc) and mileage. 

And the IRS is going to call the client or venue? A year or two after the fact? Cmon!

So I bought a model S just over 2 years ago. I do use it for business - but it's also my main personal car. I asked my accountant and she said buying was better than renting for my case. But with the >6000 GVW Model X available that is probably the way to go, from a tax savings perspective.

You can, however find much cheaper used model S's. Some in the 50-60 range (without autopilot) - so that would pretty significantly help your cost structure.


A couple things to keep in mind for Tesla's.
First - do not test drive the car until you are ready to buy one. This is a classic mistake. If you are still deciding and you test drive one, your decision will be made up.

It's less applicable now that gas prices are low, but you save more money the more you drive. I drive ~25-30k miles a year (and got a good deal on a previous loaner S) so this makes the economics tilt more in my favor - if you don't drive it much, then your gas savings will be zilch.

You're not really going to save much on service costs. I didn't do any service at all till 50k miles, but I did do the $600 service at that point. Oil changes are <$100 usually so that's a bit more expensive, but if you do Tesla's service, on Tesla's schedule, you will pay quite a bit more for service than for a gas car. I would expect something to change with this as the model 3 rolls out though. They will need to offer some lower priced service options.

As far as using it 100% for business, good luck. Once you have one you want to drive it all the time and do not really want to drive other cars. This could also be a problem if you switch to a business where you no longer need to impress clients. You will not want to go back to a gas car. Hopefully by then there will be less expensive EV options that will please you, but just beware of setting your standards high from driving a 100k car for a few years, it doesn't feel good to go back to a 30k car.

Are you a good driver? Dings will be expensive, minor fender benders will be $20k+, most accidents will be totalled. With that said, it is the safest car you can drive, so insurance isn't *that* bad, but just beware of the repair costs.

buy something sensible that suits your needs,,,mayby a versa

Want to look like you mean business? https://www.gothamdreamcars.com/exotic-car-rental

Skipping 13 Messages...
I'd buy a collector car and only drive it on special occasions. There are plenty of nice older cars that aren't depreciating any more. A local real estate agent here has a Toyota MR2 Spyder and clients are impressed by it. It's worth < $10k and it's very reliable. You could go with a used Lexus LS with real leather and wood, etc. Teslas don't really have that nice of interiors aside from the gadgets.



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