Section 179 full vehicle deduction for vehicle used 100% for business but not registered under business

[Richard1024]

I am looking to get some opinion/feedback on a few deductible costs, primarily related to Mileage deduction versus actual costs as well as section 179 deduction for vehicle.

Client purchased a bread route from a national chain, similar to a pepperidge farm or Sara Lee.  Research indicate that the route itself is to be amortized as an intangible over 15 years. 

When it comes to actual vehicle costs compared to miles; You are allowed actual costs ->maintenance (gas, oil change, repairs, etc.) lease payment, cost of car, etc. However if miles are greater take miles.

Rather than take depreciation, client prefers to take the full deduction of vehicle (via section 179) in year one.  To confirm my understanding, it’s possible to take the full section 179 on the vehicle along with those actual costs versus miles if higher.

In addition, client claims costs are all business (vehicle use 100% for business).  The vehicle is not registered under the business despite being used primarily for hauling trailer containing bread to be delivered. 

I have recommended placing the vehicle under the business in future years but 100% seems too aggressive from my view for current year but client claims that they can substantiate if questions arise.  Based on my recent reading - Nnabugwu C. Eze v. Commissioner; appears IRS has their ways of validating if the need arise

[TaxGuyBill]

What tax form is this business being reported?

What type of vehicle is it?  I'm picture one of those 'box trucks', and 100% business would seem reasonable.  But then you said "hauling trailer containing bread", so it may not be what I'm picturing.

If it is a just a 'regular' automobile, then the client needs to have good substantiation of the business miles.  Once you have the number of business miles, contrast that to the total odometer miles during the year and you'll have your answer to the business percentage.

[abctax55]

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"...Rather than take depreciation, client prefers to take the full deduction of vehicle (via section 179) in year one"

§179 *IS* depreciation.  Take that in year one, and you are stuck with actual in the first year and going forward for the ownership of the vehicle.  

Take mileage in year one and you get to go back & forth using SL.

I ask my clients for the miles, total & business.  If they say it's 100% business and they have other vehicles - I take them at their word (along with getting it in writing on the organizer of course).

[Just-Lisa-Now-]

You mentioned lease payments...is this  a lease?

[abctax55]

Excellent question Lisa....  

@Richard1024  - you can't depreciate a leased vehicle.

[Richard1024]

Thank you very much for the info. The lease was added in error. There is no lease. The vehicle is a large truck 2013 Dodge Ram 2500 for which there is a costs in 2022 of $23k. The vehicle is used to transport the trailer holding the bread to the stores. There is also another vehicle for personal use. 

Based on vehicle & weight - It appears up to that amount $23k can be deducted in full under section 179 in addition to other costs actual costs (maintenance, fuel, oil change, repairs).

To confirm- if they they do the section 179 for the full vehicle - are they required to stay with actual costs for the ownership of vehicle or can they switch from actual costs to miles in future years if miles work out best? 

I think it is a great idea to have them sign off on the my calculation spreadsheet acknowledging their numbers. 

[Richard1024]

In addition, the individual is reporting under a Schedule C.

[abctax55]

".....§179 *IS* depreciation.  Take that in year one, and you are stuck with actual in the first year and going forward for the ownership of the vehicle."

And a tip.  You can do bonus depreciation instead (you do have to take it on ALL assets in the same class for the same year.  Doing so means that IF the business use drops below 50% in future years, recapture isn't required.

I'm surprised PS doesn't default to bonus.  An election is necessary if opting out of bonus depreciation.

[TaxGuyBill]

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@Richard1024 wrote:

To confirm- if they they do the section 179 for the full vehicle - are they required to stay with actual costs for the ownership of vehicle

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Yes.

[TaxGuyBill]

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@abctax55 wrote:

Doing so means that IF the business use drops below 50% in future years, recapture isn't required.

I'm surprised PS doesn't default to bonus.  An election is necessary if opting out of bonus depreciation.

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Unfortunately, it is Listed Property, so recapture will happen even with Bonus.

ProSeries requires you to indicate if it is eligible for bonus, and when you check that, it does default to Bonus (unless you check the box to elect out).  But some states treat §179 better.  I think he is working on 2022, but starting in 2023, Bonus starts dropping (80% for 2023).

[Richard1024]

Thank you for confirming & providing guidance on the requirement to use the same method in successive years. and the bonus depreciation. 

There is actually two years of the return to be completed 2021 & 2022.  Client bought the route in early 2021 and did not file a 2021 return.  As I'll be completing the 2021 return too, I will need to get the correct setup in the 2021 tax year and then carry that methodology into 2022 and future years. 

There  were actually two trucks, one they had owned previous to the route but sometimes later in the year (2021) or early in the next (2022) they purchased a newer truck for the business.  I am awaiting confirmation on the actual date of purchase to determine if it's a 2021 purchase and carry that selected method into 2022.  I will post additional updates/follow-up.  Thank you!

[TaxGuyBill]

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@Richard1024 wrote:

Client bought the route in early 2021 and did not file a 2021 return.  As I'll be completing the 2021 return too, I will need to get the correct setup in the 2021 tax year and then carry that methodology into 2022 and future years. 

There were actually two trucks, one they had owned previous to the route but sometimes later in the year (2021) or early in the next (2022) they purchased a newer truck for the business.  I am awaiting confirmation on the actual date of purchase to determine if it's a 2021 purchase and carry that selected method into 2022. 

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If it was "placed in service" in 2021, you can only use Actual Expenses.  It is too late to elect the Standard Mileage Rate.

[qbteachmt]

"I have recommended placing the vehicle under the business in future years"

Sched C means there is no "business" name to register this under. It's a disregarded entity. Putting it in a business name, if this was operating as an S Corp, would make all personal use taxable to the user through payroll. It is not always advantageous to register a vehicle to a business. It depends on the facts and circumstances. Now there are two vehicles in use for the business, and you still believe none of the use is personal?

"appears IRS has their ways of validating if the need arise"

Well, they don't have spies around town writing down license plates. They would require evidence, or they can deny a deduction being claimed that is not substantiated, if that is what you mean.

[artik1]

So can someone use 179 provisions and take 100% depreciation of your car if it is registered under your name, but using it for business for your S corp?