Can depreciation be claimed on an vehicle owned by another company

[n2n]

my client owns 2 different business one is an INC and the other an LLC (P) .since the LLC was a new company he used the business credit from the INC to purchase the vehicle used solely  the LLC. the LLC pays all the expenses and loan on the vehicle. my question is which business get the depreciation write off… the LLC or the INC. The LLC doesn't own the vehicle but uses it solely 100%.

[TaxGuyBill]

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@n2n wrote:
my question is which business get the depreciation write off…

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Neither?

Based on what you wrote, it seems that one company doesn't own the vehicle, and the other isn't using it for business.

Is the second company renting the vehicle from the first company?

[qbteachmt]

"he used the business credit from the INC to purchase the vehicle used solely the LLC"

I am assuming the "Inc" means S Corp. You need to always state the Entity type.

Who is on the Title of the vehicle? Who is on the Loan document: John Doe, President of S Corp? John Doe, personally? Both (loan officer should know to make him sign as both)?

If the S Corp owns the vehicle:

The person using the S Corp vehicle at all is going to be charged through Payroll for Personal use as taxable fringe benefit (there are mileage rates and/or lease rates that would be used for that valuation). What they do with it otherwise is between them and the Insurance agent.

If the S Corp is on the Debt:

The LLC would be paying all operating costs and loan against a vehicle it doesn't own and against debt it isn't liable for. Do you have some sort of note between the person getting the use of the car from the S Corp and the LLC, like a lease or rental agreement?

If the Debt is personal, then if the LLC is a disregarded entity for this same one person: that makes the debt interest business and the Operating costs are Actuals, but they still don't own the car, and you still need to determine the arrangement between the S Corp and the LLC from the perspective of, perhaps, wrap-around loan payments.

Like this:

S corp is co-signer, but John Doe owns everything personally?

[n2n]

My client owns 2 businesses. One a c Corp and the other a llc partnership. He used the business credit of the c Corp to purchase a vehicle for the LLC. So the vehicle is in the c Corp name, and my client's name, both are responsible for the vehicle loan.The LLC uses the vehicle 100% no personal us of vehicle (truck). The c Corp doesn't use the vehicle. The LLC pays the loan and vehicle repairs and maintenance. Does the c Corp get the depreciation? since the vehicle is in its name and the LLC recorded the actual expenses paid and not the depreciation? Or does the c Corp not report and depreciation?

[qbteachmt]

Let's take this a bit at a time:

"My client owns 2 businesses. One a c Corp and the other a llc partnership."

I'd like to help and help him and you understand this differently. He owns Shares of a C Corp, no differently than buying MG or Ford or Tesla. He also might be an employee of that corporation, which the Supreme Court tells us is its own Entity. He is not "the owner." He might be the only Shareholder. He might be CEO or President, as well. He still is John Doe, person, too.

"He used the business credit of the c Corp"

And this is where the issue lays, because the C Corp is not his personal bank. This is like him asking if you will stand behind (co-sign) a loan or buy a vehicle for him. Same thing = C Corp involved is the same as a Loving Stranger involved. You know him and trust him and like him, but he is not you.

"to purchase a vehicle for the LLC. So the vehicle is in the c Corp name"

Then he is getting the use of a Corporate Asset personally = taxable fringe benefit that is supposed to be run through Payroll.

"and my client's name"

The title should be in the C Corp only. Ford would not allow me, as a shareholder, to put myself on the title of their property, too. He doesn't understand "running" a corporation and "piercing the corporate veil." Example of what he just did: if there is a horrendous vehicle accident, he is now personally liable, because he owns the vehicle with the C Corp.

"both are responsible for the vehicle loan"

He signed the note Twice, as each personage? Smart salesman; now he has twice the recourse for payment of that loan. Your client didn't need to do that 🙂

"The LLC uses the vehicle 100% no personal us of vehicle (truck)."

Yes, it's All Personal, if you want to state the C Corp owns the vehicle and it is not in use for the C Corp.

Does that help?

"The c Corp doesn't use the vehicle." <== There, you stated it, again

"The LLC pays the loan and vehicle repairs and maintenance."

The LLC isn't on the title or the loan.

"Does the c Corp get the depreciation? since the vehicle is in its name and the LLC recorded the actual expenses paid and not the depreciation? Or does the c Corp not report and depreciation?"

I would direct you to local mentoring. Your client has had some bad guidance to now, and it seems like something that needs to be unraveled, and dealt with. Including: Ownership title, loan, payroll, perhaps a lease/rental agreement between the C Corp and the LLC, insurance, etc.

This is a bit of a mess and is beyond a ProConnect usage question. Until you have all those answers, you cannot put anything anywhere.

[n2n]

yes, basically

[qbteachmt]

It occurred to me this part was not clearly stated in this topic:

A person does not get the use of a car for free. Even though the LLC is paying something to "someone" for "something" in addition to operating costs, they are either buying the car from the C Corp (a sort of wrap-around purchase as installment sale) or the LLC (your individual person, if there are no partners) owns the car and the C Corp does not own it. The C Corp is more like his parents co-signing on the loan.

If the C Corp owns a car it isn't using, the asset is not in service. If there never was the intent for the C Corp to have a business use of this vehicle, it's going to be very hard to show depreciation on something that is not just parked when not in use by the owner (C Corp); it has some use and that would need to be represented properly. Here is the typical method of: a business has a fleet of Delivery vans, and when not in use, they are parked. If an employee wants to take it camping for the weekend, that is personal benefit. The IRS doesn't allow freebies.

If there is any personal use of a vehicle by an employee, that is Taxable as a fringe benefit to the person using the vehicle. Even if the LLC bought a vehicle and then let an employee use it, that is taxable to the employee. Example: No one gets the use of the Company Truck for hunting season, for free. That use is taxable to the employee. They might be getting the use of an $85,000 truck and their tax at year end is $800. That's **bleep** reasonable. They just don't get to use company resources of "listed property" for free.

The IRS doesn't allow us to move all costs of living into our businesses and then write it off.

Maybe that will help you explain the problem(s) to this owner.