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New SUV every year with Section 179?

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rated:
Hi everyone,

I just had a quick question about section 179 deductions when it comes to SUVs over 6000 pounds. 

From my understanding, you can deduct 50% of the SUVs cost, plus 50% of the remainder as bonus depreciation, plus another 20% as year 1 depreciation. 

Provided you are in the 25% or above tax bracket, wouldn't it make sense to buy a new car every year? 
For example if you buy a 60K car, your deductions would save you at least 12K in taxes. You could sell the car for around 45K the following year and basically break even while having a new car every year. 

Am I missing something? Can you take this deduction every year or is it one of those rules where you can only apply every, say, 3 years?

Thanks! 

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rated:
I've yet to run across a LLC or C that has anywhere near a 25% effective tax rate. 10% effective federal is more realistic. And you are also not factoring in TTL.

rated:
Assuming you took a 100% deduction in the previous year and sold the SUV for $45,0000 following year you would have to report entire amount as 100% gain since you would have no basis in the SUV.

Besides you'll have to net $60k after expenses to have the cash flow to pay for the $60k SUV which make purchasing one each year pretty silly.

rated:
Long story short, I work in real estate and am trying to figure out what is the best option for acquiring a car. Does the 179 deduction, if I keep it for 3 years make the most sense if i'm 25% + bracket?

I'm trying to figure out how to get the largest deduction

rated:
Buy a car you can afford

rated:
luckyaces2 said:   Long story short, I work in real estate and am trying to figure out what is the best option for acquiring a car. Does the 179 deduction, if I keep it for 3 years make the most sense if i'm 25% + bracket?

I'm trying to figure out how to get the largest deduction

  

You're in real estate and haven't heard of depreciation recapture?  It's a wash, the only net benefit is of time-value of deferred tax from these deductions which get paid back in form of cap gains on vehicle sale because you now have a zero basis.  So if you want to take a free loan of 25% of invested capital from the government in exchange for buying rapidly depreciating assets with that capital, feel free I guess.

However, new cars depreciate much faster than the current risk free rate of return so you're still making a bad investment.


Although this does raise an interesting question for me because I'm not an accountant:  If you buy and depreciate in a year with high business income and sell in a year with 0 income do you benefit from the arbitrage between marginal tax rates?

rated:
steevan said:   Assuming you took a 100% deduction in the previous year and sold the SUV for $45,0000 following year you would have to report entire amount as 100% gain since you would have no basis in the SUV.

Besides you'll have to net $60k after expenses to have the cash flow to pay for the $60k SUV which make purchasing one each year pretty silly.

  
It's a deduction not a credit. So a 50% deduction is on a 60k car is 30k and if you're in the 25% bracket, that has a value of $7500. The 100% deduction works out to a tax savings of 15k. I think you'd need the income to use that deduction though. So the SUV isn't free, just worth maybe 15k or so depending on how the math works out. If you get 45k trading it in, then the SUV only costs 15k essentially making it free. Or at least that's the theory. 

rated:
henry33 said:   steevan said:   Assuming you took a 100% deduction in the previous year and sold the SUV for $45,0000 following year you would have to report entire amount as 100% gain since you would have no basis in the SUV.

Besides you'll have to net $60k after expenses to have the cash flow to pay for the $60k SUV which make purchasing one each year pretty silly.
It's a deduction not a credit. So a 50% deduction is on a 60k car is 30k and if you're in the 25% bracket, that has a value of $7500. The 100% deduction works out to a tax savings of 15k. I think you'd need the income to use that deduction though. So the SUV isn't free, just worth maybe 15k or so depending on how the math works out. If you get 45k trading it in, then the SUV only costs 15k essentially making it free. Or at least that's the theory. 
No, that is not the theory -- you'll need to pay income tax on the $45K gain from the sale. Already mentioned above.

rated:
Fundamentally, tax deductions don't make things free, they just reduce the cost. So, if you're going to buy an SUV for $60k, and sell it for $45k, your tax deduction will reduce the $15k the SUV will cost you, but it won't eliminate it entirely.

rated:
luckyaces2 said:   Long story short, I work in real estate and am trying to figure out what is the best option for acquiring a car. Does the 179 deduction, if I keep it for 3 years make the most sense if i'm 25% + bracket?

I'm trying to figure out how to get the largest deduction


Probably not.

Plus do MPG calculations. If you are in RE, you are probably driving a lot, thereby quickly destroying the value of whatever you buy.

Your best financial move would be to buy a late model used car, that gets good gas mileage.

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